The Construction Loan Process
The Construction Loan Process involves everything leading up to the closing and start of construction on your new home. Once you are approved by your lender and your builder is registered, steps need to be taken and documents need to be provided in order to make it to closing.
Drawing Plans and Specifications Are Required
A clear set of architectural drawings with floor plans, showing all dimensions and outside elevations, as well as drawings of the exterior needs to be provided in the final plans and specifications. The contractor will have to provide further details regarding the type of materials which will go into the construction of the home; wood shingle or lightweight tile roofing; brick or stone exterior.
You'll Need an Appraisal Report
The final plans are important to understand the cost of building the home, but it is necessary for the appraisal as well. Just like any other mortgage, lenders need to know the value of your home in order to calculate its Loan-to-Value ratio. But appraising a home that has not been built is a little trickier. That's why professional appraisers need detailed plans and specifications, as well as the total budget for the project to determine its value subject to completion.
The Construction Contract Defines Responsibilities
You and your builder will draw up a Construction Contract. This agreement between both parties outlines the planned construction project, the agreed upon cost of building, and the project's timeframe. The Construction Contract must be fully turnkey, meaning the builder must be responsible for all aspects and the hiring of any and all subcontractors.
Cost Breakdown and Draw Schedule
A cost breakdown needs to be provided by your builder, including all costs going into the construction of your new home, with the total matching that on the Construction Contract. Your lender will usually provide the cost breakdown form to be completed, and have specific guidelines for how draws for the builder are determined and disbursed. Some lenders utilize a line-item percentage of completion method for determining draws while others may use a project percentage of completion method. Typically, funds are disbursed on the basis of work completed.
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June 26, 2025The decision on getting a One-Time Close loan should be based on personal priorities. If your primary goal is to create a fully customized home, and you possess the patience and diligence required for a long-term project, building with a construction loan is an excellent path.
June 12, 2025Are you considering building from the ground up using a One-Time Close mortgage? Knowing which costs to anticipate and how much to expect to pay at closing time are key factors in a successful single-close residential real estate construction loan. What does a first-time borrower need to know about these costs when still planning and saving for the OTC loan?
May 27, 2025Why do some home buyers build, and why do some buy existing construction? For starters, building a dream home from the ground up on your own lot isn’t for everyone. An FHA One-Time Close loan is a specialized mortgage designed to finance the construction of a new home. It consolidates all associated costs, including the land purchase, construction expenses, and the permanent mortgage, into a single loan transaction.
