One-Time Close Roadmap: From Application to Permanent Loan

1. Loan Application

Your loan originator can help you determine the approximate loan amount and answer any questions you may have about the construction process.

Start this discussion early in your construction planning to ensure your budget is on track and important issues are properly addressed.

What Documentation Should I Bring?

• Income Information
• Asset information
• Final HUD-1 settlement statement from purchase of the lot (if applicable)
• Copies of invoices and cleared checks for any prepaid items such as surveys, architect fees, plans, etc.

You will need Homeowner’s Association approval prior to closing if your property is located in and governed by a Homeowner’s Association

A letter from a licensed drilling company addressing water availability will be required if you anticipate using a private well as your water source.

2. Builder Review

Because your builder is an integral part of the construction process and will be involved in draw requests, lenders require a thorough review to evaluate the builder’s financial stability and experience level.

Required Documentation From Builder

• Builder resume
• Current contractors license
• Evidence of liability insurance/bond
• List of sub-contractors with licenses and insurances

If you have not selected a builder yet, you will want to conduct your own appropriate due diligence on the builder that you ultimately select.

3. Project Documentation

The lender collects the following items to order your appraisal:

• Complete electronic set (PDF) of plans
• Construction contract, signed and dated by you and builder
• Cost breakdown, signed and dated by you and builder – the total from the cost breakdown should match the amount on your contract
• Description of materials and specifications
• Any secondary contracts
• In the event you have a separate contract for a portion of the project such as well installation, pool driveway pavers, etc.
• Purchase contract, if you are purchasing the lot as part of your loan
• Application deposit

4. Final Documentation

The ideal time to submit all remaining items is while the appraisal report is pending.

• Course of construction/Builder’s risk insurance policy – The lender needs contact information for the insurance agent you would like to use
• Public or private utilities and access – There are specific requirements based upon whether public or private utilities are available to your property. This is to ensure that you have a “buildable site”
  • Septic: Perc test or copy of septic approval/permit for county
  • Well: Letter from licensed Drilling Company, data from nearby wells
  • Shared Well: Shared Well Agreement
  • Private Road: Road Maintenance Agreement
• Any additional prepaid items – Invoice and cleared checks are needed
• HOA design approval, if applicable
• Building permit, if available

5. Final Approval & Closing

Your completed file will be submitted to underwriting for final approval.

Closing will take place at the Title Company. Your escrow officer will contact you to schedule a time for signing, you will be told the exact amount you need to bring, typically in the form of a cashier’s check or wire. As soon as your loan funds and records, your builder is free to break ground.

6. Construction Phase

Your loan is now complete and you are entering the 12/18 month construction phase. Your builder will typically coordinate submitting the draw request form, which both you and the builder must approve and sign. The lender then arranges for a local inspector to visit the site and verify the work has been completed prior to releasing the funds. Remember, funds can only be disbursed for work that has been completed.

Important Things to Remember During Construction

• Building permits will be required prior to the first draw
• During the construction period, interest is only charged on funds that are actually disbursed – As interest begins to accrue, your monthly interest-only payment will be deducted from the Interest Reserve account setup at closing.
• Lenders often build a contingency (for example, 5%) into your loan amount in the event of cost overages, or upgrades – These funds will be available to reimburse you for an unexpected expenses
• During the construction phase, you are responsible for paying your property taxes semi-annually – the lender does not escrow during this period
• If you are installing a private well, your well registration, pump flow test, and water quality testing results will be required prior to your final draw
• The final draw will be made to you and the builder jointly – it will not be issued until the project is 100% complete and the Certificate of Occupancy has been issued

Rolling to Permanent Financing

After the completion of construction, your loan will conveniently roll to a permanent mortgage. Any funds remaining in your construction account will be credited directly towards your principal balance. Your escrow account will be for your property taxes and homeowner’s insurance at this time. You may also setup automatic payments for ease and convenience.