Residential Construction Loans
Today's modern day construction loan is usually a one-time close, one set of loan fees construction to perm or permanent loan. The construction loan includes the construction loan period and long term financing to build a dream home. Construction Lending Features:
Construction Lending Features:
- Lot Loans
- Demo & Rebuild
Lot loans up to $2,000,000
Construction financing to $3,000,000 standard and up to $10,000,000 for High Net Worth individuals.
Lock permanent loan up-front for up to 24 months on ARM and Fixed loan products.
Construction Loan Highlights
Construction Loan Overview
Single close construction to permanent financing.
Purpose of Construction Loans
Purchase, finance and cash-out refinance
Construction phase: Prime based, interest only based on the amount disbursed. Permanent phase: Lock First allows the permanent financing to be locked prior to beginning construction. Lock After floats the permanent financing until after construction is completed.
Modified/Standard (Full Doc)
Primary residence, second home, investment (rental) property.
New construction, remodel or rehabilitation of: 1 unit, PUDs Attached and detached dwellings (i.e. PUDs, town homes) are permitted for both ground up and remodeling. 2 Units. Pre-starts (homes already under construction) are permitted provided there is no delinquency on the existing construction financing.
Not permitted: Condos, coops , development projects and spec homes commercial, mixed use, apartments.
Construction Loan Terms
Construction phase (months) 4, 6, 9, 12, 15, 18, 21, 24
equired Standard. Can be waived under certain circumstances.
Required Standard. 5% on Ground Up and Non-Structural Rehabs. 10% on remodels. Can be waived under certain circumstances.
By exception only. Owner/Builder requires a licensed contractor as a project manager. Specific requirements apply throughout the construction phase regarding the Project Manager's responsibilities.
Construction term: <=6 mos.: 5draws, 9mos.: 9 draws, 12 to 15 mos.: 14 draws, >=18mos.: 18 draws. Additional draws can be purchased for $150/each
For loan amounts greater than $1,000,000, 2 appraisals are required. Appraiser must be on the lender approved list.
Special Construction Reserves
6 months PITI - conditions apply
Waive Financed Interest Reserve
Pre-Closing Asset Accounting
In addition to brokerage accounts, retirement accounts, bank account balances, etc., recent (within 24 mos.) payment toward lot purchase, and prepaid expenses for hard and soft costs related to the project can be considered as pre-closing assets (if properly documented).
Modified/Standard (Full Document)
Purchase and Rate/Term Finance
|70%||$3,000,000 and above 60 to 70%|
Credit Score and Qualifying Ratio Requirements
Preferred Documentation Features
Salaried (two year work history required)
1 YTD pay stub (most recent computer generated), 1 W-2 Form (for most recent year)
Self-Employed (Borrower owned for 2 years minimum)
1 year 1040 (pages 1 & 2 only of most recent year), Sched. A required for commissioned income.
Not Required: Business Returns, K-1s, Balance Sheet, P&L.
Same as Salaried. Average of YTD &w-2
If commission income is <25% of total, use salaried doc.
If commission income is >=25% of total us Self-Employed documentation.
Other Income Sources
Purchase: 2 month bank statement. Refinance: Not required
Purchase: 6 months PITI. Refinance: None. Subject to additional construction reserves requirements (i.e. Transitional, Contingency & Interest Reserves)
Important Documentation Requirement
Signed 4506-T required