The Construction Loan Process


The first step in the loan process is determining the maximum loan amount that you qualify for; this figure will be based on the estimated value of your completed home. This budgeted estimate will be provided to you by one of our specialists. In order to reach this estimated value we must look at a variety of costs that goes into the new home building process. These costs include the value of the land and the home, a contingency reserve, an interest reserve, and the closing costs.

Let’s explore the various costs mentioned above.

Land Value/Home Costs

If you do not already own a lot you can use funs from the Construction-to-Permanent Loan to secure your property. However if you already own land, and it was purchased within the last twelve months, the land’s purchase price will be used to determine the site value. In order to process this you will be required to have a copy of your HUD-1 or settlement statement from the land purchase. If you purchased your land over twelve months ago then it will need to be appraised and that estimate is the value that will be used.

Contingency Reserve

Due to the fact that some construction processes have unforeseen cost increases, our lenders will require a contingency reserve account; this account will help you cover these additional costs. In addition to the contingency reserve, some builders may also require you to have a contingency reserve account with them; this will be independent our lender's account.

Interest Reserve

The interest reserve account is created to pay your estimated interest payments during construction; no out-of-pocket payments are required during the construction period as long as funds remain in the interest reserve account. If you choose to, you can also make the interest payments as they come due.

Closing Costs

As with any loan, there are closing costs associated with the Construction-to-Permanent Loan. Closing costs can include appraisals, construction administration fees, discount fees, insurance, loan fees, and title costs.

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