New Construction

If you are building your dream home we have some excellent lending options to help get the job done. Our loan officers can help you finance the construction and a final mortgage, keeping the process simple.

There’s something almost magical about building your own home. A new home can be an expression of creativity and individualism, and there’s a tremendous satisfaction in being able to say “This was our vision”. New construction is a longer process than buying a pre-owned home, and requires more active participation from the buyer.

New construction lending is different from purchasing a home in one important aspect. There are two loans written on new construction projects, as opposed to one on a purchase. The first loan is the construction loan. It is usually for a fixed period of time (6 –12 months), and is paid off by a conventional mortgage (end loan) when the construction is completed. The construction loan is usually a credit line, with “Interest Only” payments made on the portion of the loan which has been used to date.

Most frequently, the construction loan and conventional mortgage (end loan) are closed simultaneously at the start of the building project. This saves on closing costs and simplifies the financing process for you and your family. In some cases, a “bridge loan” can be used to avoid needing to make payments on two homes at once. Bridge loans use some of the equity (usually 80%) in your current home to make the payments on the construction loan and to make a downpayment on your new mortgage. With a bridge loan, you only need to qualify for one house payment. Be sure to ask your loan officer about bridge loans.

1. Prequalification
The loan approval process begins with an initial interview with your loan officer to discuss the potential loan. This will help you to determine in advance what price range you can realistically afford and the construction loan and mortgage amounts for which you can qualify, and also give you more purchasing power when it comes time to make an offer on a house.
For your first meeting with your loan officer, you should be prepared with the following information for all applicants:

• Names, age, and social security numbers of all borrowers
• Current address. (If you have been at your current address for less than 2 years, will need a four year history.)
• Employment & pay history (2 years history)
• Your bank account numbers and addresses
• Settlement statement(s) (HUD-1) for any properties currently owned
• Mortgage statement(s) for any properties currently owned
• Current rent amount, if renting

After you fill out a loan application and give your loan officer permission to gather the financial information that’s needed for your loan, your loan officer will start the process of getting you prequalified.

Depending on your credit history and your current financial situation, the loan officer will work with a lender to determine how much and what type of program you qualify for. Your loan officer will then provide you with a prequalification letter that you can use when making an offer on a home.

2. Find a Site and a Plan
The most important factor in choosing your home site is location. School district, local traffic trends, proximity to shopping and amenities are all factors in this. Your loan officer or real estate agent can help you to find a lot that meets all of your needs. Remember, if you choose a lot in between two other vacant lots, you will eventually have neighbors on either side of you!

It’s important to have confidence that your builder can put your vision into the structure, and that you will have great communication throughout the process. Builders usually have several basic models they build. There are nearly infinite variations to these that can make each structure unique without adding to the cost excessively. Custom built homes or homes built from plans a builder hasn’t used before are generally more expensive and the projects also tend to have more cost overruns. Before committing to a particular builder, take a look at some of their previous and current projects. Meet with them more than once to be sure you’ll be comfortable working together. Spend time at the beginning of the project agreeing on all details (including colors, cabinet hardware, woodwork type, doorknobs, placing of outlets, plumbing access panels, etc…) – it can be VERY costly to make changes to a plan once the building process has started. Be sure to go over your plans and specs with your family, your loan officer, your realtor (if applicable) and lots of other people before signing off on them. Spending time on the front end of the process can really save a lot of time and money, and another pair of eyes can often see a potential problem or point out a great modification that might have otherwise been missed.

3. Loan Process
Once you and your builder have agreed on a site and the plans and specifications (specs), your loan officer will need to collect the following documentation to present to the lender to underwrite your loan.

• The signed Purchase Agreement (provided by realtor)
• The signed Sworn Construction statement (provided by the builder)
• Signed loan application and other disclosures (provided by loan officer)
• Pay stubs covering the last four weeks
• W2's for the last two years
• Bank statements for the last 2 months
• If you are self employed or earn commissions, tax returns for the last two years
• Divorce settlement papers, if applicable
• Landlord information
• You will potentially need other items, for example copies of cancelled checks for rent paid. Your loan officer will inform you of additional information needed.

4. Underwriting and Final Approval
Once all of the information is collected and an appraisal is completed on your new home, the lender will complete the underwriting of your loan. Your loan officer will work closely with the underwriters to follow your loan through the final process.

5. Prior to Closing
There are a few more things you need to prepare prior to closing. You will need to purchase and provide a paid binder for Homeowners Insurance. Most lenders will require you to pay one year of insurance premium up front. Your loan officer will provide you with a Good Faith Estimate that outlines what the Closing Costs involved with your loan will be. Often times these costs can be rolled into the loan as part of a seller concession – work with your realtor and loan officer if this is an option you wish to pursue. In most circumstances you will also need to have a Down Payment, but there is a good chance you may be able to finance the entire purchase price of your home. Your loan officer will provide you with your best options. If you are paying your closing costs and down payment out of pocket, you may need to provide proof of your deposits or proof of gift funds.

6. Closing
The closing for your new home will take place at a Title Company and will typically be attended by the Sellers, the Sellers agent, the Sellers closer, your Agent, your Loan Officer, your closer, and you. Your Loan Officer will arrange the closing and inform you of any money or other items you need to bring to closing. At the closing you will sign documents that transfer the title and deed to your name, and loan documents that indicate your promise to repay the mortgage obtained securing your new home. The lender will issue funds to the seller for the purchase price and you will provide a cashiers check for any closing costs and down payment that you are paying out of pocket. Once all documents are signed and money transferred, you are a new home owner!