Construction Finance Center

It begins with finding a great location and ends with the finished home. Sounds simple enough, but building a new home is a large and time-consuming undertaking. The journey begins several months before you break ground. Having a clear vision and understanding of each step of the process – from choosing home plans to finding an experienced builder to planning the budget – will help make your homebuilding journey a smooth ride. And one of the most important first steps is securing your construction financing. If you plan to finance construction, now is a great time to build. Whether this is your first home, vacation get-away or retirement home, interest rates continue to remain at near record lows.

What to look for in a construction lender:
Working with a reliable lender that understands construction financing is key. Your lender should be able to answer all of your questions about financing options and recommend the loan program that best meets your needs. Your construction lender also determines the loan amount for which you qualify. This may translate into a larger home, different floor plan, extra bathroom, upgraded kitchen or an added amenity like a home theater. If you’re the homeowner, you can begin to save on costs by getting a loan that includes both the construction phase and the permanent loan once the home is complete. A one-time close Construction-toPermanent Loan (CTP) does just that.

Why a one-time close CTP Loan is the way to go:
It wasn’t too many years ago when building a home required two loans – one for the construction phase and one for the permanent financing. Today, most home construction lenders offer a one-time close CTP Loan. With only one application, one closing and one set of closing fees, you get all the financing needed – a construction and permanent loan combined in one. This type of financing saves both time and money.

When the construction of your home is finished, the loan simply converts to a permanent loan without any additional fees. Also, a CTP Loan typically includes interest rate protection during construction – an important feature if rates begin to rise. Keep in mind, a CTP Loan is a reimbursement loan. This means that the funds are disbursed as your home is built and when certain key events occur.Homebuyers aren’t the only beneficiaries of a CTP Loan. The builder also benefits. By allowing the homebuyer to take out the funds to build the home, the builder has more available funds to pursue other projects.

The importance of planning ahead:
When determining your loan amount, remember to consider your lifestyle and that of your family. If you’re going to include granite countertops and walk-in pantries in the kitchen, make sure you budget accordingly It’s important to get a loan amount that covers all your needs because you don’t want to use your cash and pay out of pocket later. Knowing your financing options early in the process will help your project move smoothly with fewer surprises along the way. Don’t forget to ask your lender about costs associated with the closing of the loan such as title costs, loan fees, discount fees, inspection fees and appraisals.

Whether you’re a homebuyer or builder who enjoys the convenience and speed of the Internet, it’s an added benefit to work with a technology-savvy lender who has streamlined the disbursement process. Look for a lender that offers 24/7 online access to construction funds and loan information. Make sure you have the ability to request draws and view the available funds.

How the CTP Loan process works:
Since a CTP Loan involves determining the value of a home that is not yet constructed, your lender will need your building plans, description of materials to be used in the construction and the total costs to complete the home. This information will assist the appraiser and lender in determining the future value of your home.

Your lender may also require a copy of your builder’s professional license and a statement that ensures that your builder is experienced and will be able to perform under the terms of the contract. During construction, you and your lender have additional risk which may necessitate insurance requirements. Here’s a list of the requirements that are usually involved with a CTP Loan.

Course of Construction Casualty Insurance
This is an “all risk” policy covering fire, extended coverage, builder’s risk, replacement cost, vandalism and malicious mischief insurance coverage. The owner is named as insured with the insurable value equal to the replacement cost of the improvements or the loan amount, whichever is lower. The lender is named as the mortgagee under the policy. Once the improvements are completed and the permanent loan phase begins, the course of construction policy is usually converted to a standard “all risk” homeowner’s policy.

Workers’ Compensation Policy
This covers the contractor, subcontractors and others who will be working on your property. The building professional typically provides this policy, thus the building professional should be named as the insured.

General Liability Insurance
This policy can be provided by you or the general contractor. If you provide this insurance, a minimum amount of $300,000 for each occurrence is required, extended to both property and personal injury. If your building professional is providing the insurance, a comprehensive general policy of at least $1,000,000, or a policy including a broad form liability endorsement is required.

Flood Insurance
You are required to have flood insurance if your home is being built in an area that the federal government has identified as a Special Flood Hazard Area.

Enjoy the journey!
For most of us, building a home is a once-in-alifetime experience. Whether you’ve already decided to build your own home or are just dreaming about it, understanding the process and having a clear vision from the start will make the journey much more enjoyable.