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Florida Construction Home Mortgage Loan or call
us at 808-357-5326
Frequently Asked Questions About Construction
What Types Of Construction
Financing Does Florida Home and Loan Offer?
We can help you with custom home
construction with our construction/perm program, acquisition and/or
remodeling of an existing home with our renovation program, or
with an innovative construction second trust which is based on
the "as completed value" of your home.
Do I Need To Apply For A Construction Loan?
In addition to the standard asset, liability, and employment
documentation, you will need to provide plans, specifications,
and a fixed price (not cost plus) builder contract. If you are
using the 203(k) program or the Construction Second Trust, you
may act as your own General Contractor and we will need a cost
breakdown plus subcontractor's bids/fixed price contracts.
What Is Required Before Funds Can Be Advanced?
Prior to disbursement of funds, you will need to provide:
a copy of the building permit and hazard/builders risk insurance.
Prior to your loan's conversion to permanent financing we require
updated hazard insurance, well certification, a final survey,
and the use and occupancy certificate. Other items may be required
depending on the type of construction and permanent loan selection.
What Lender Fees
Are Associated With The Construction Process?
We collect a fee at settlement, which covers inspections and
modification to a permanent loan. There may be an additional fee
if you exceed the standard number of inspections and draws. There
also may be discount points (never origination fees) for prepaid
When Is Private Mortgage
Typically, Private Mortgage Insurance (PMI) is required on
the permanent loan when your down payment is less than 20% of
the completed value of the property.
What will happen
if I need more time to complete construction?
Our goal is that your house is completed on time and on budget.
We will work closely with both you and your builder to ensure
the project comes in on time. In the very rare case when a project
is not completed on time there may be a small charge to extend
the construction phase.
Who Is My Primary
Contact During The Construction Process?
Your Title Company or Settlement Attorney will handle the
disbursement of funds at the appropriate intervals and I am always
available to handle any other financing related details that may
arise. Our Construction Department is also available to assist
you and your builder during construction.
What Is The Draw
The "Draw Schedule" details the amount available
to be disbursed and requirements that need to be met throughout
the construction process. Generally, there are 3 to 6 draws. Draws
are disbursed by the Title company after inspection by the appraiser
to verify the work.
When Will I Receive
a Draw Schedule?
You will receive a draw schedule prior to closing. Should
you or your builder have any specific needs, please inform your
Title Company or Settlement Attorney.
What Methods Are
Available For Disbursing Funds?
Funds are disbursed by check to either you and your builder
jointly, you, or your builder. As a consumer protection, I prefer
to have the check in both names but we can accommodate your preference.
How Does The Draw
We will send an inspector out upon you or your builder's request.
Upon verification of work completed, we will disburse funds.
How Are Payments
Calculated during the construction phase?
Payments are interest only based on the outstanding balance and
are due on the first of each month. A bill is mailed to you 15
days before the payment is due. Depending on the program selected,
you may have a construction rate which is tied to the Prime Rate
and may adjust or a fixed rate
When Should I Lock My Permanent Rate?
Depending on your preference, you may lock in your permanent interest
rate at any time. However, keep in mind that there may be an extended
lock fee for locks over 90 days. If you are concerned over rising
interest rates, you may wish to consider the Smart Lock which
will allow a Float Down feature is rates improve significantly
What Is Modification?
Modification is the process of converting your construction loan
into the permanent loan of your choice after construction is complete.
What Do I Need To Modify?
Before modification you must have met all the requirements
detailed on your commitment letter and draw schedule.
When Are Escrows Collected?
Escrows are generally required when you convert to a permanent
loan. I can help you determine the escrows associated with the
permanent financing. Also, please remember that you are responsible
for paying property taxes directly during construction.
May I Pay Down On My Loan At Any Time? Are There Penalties?
You may make principal reductions anytime you wish prior to
modification without incurring any penalties.
About Construction Financing
1. I have to pay off my
lot before I get a construction loan.
2. I should pay for
everything myself first, then get my loan.
#1 and #2 are the most common misconceptions
in building or remodeling today. If you are thinking about new
construction, I advise my clients to take advantage of available
lot financing programs with small down payments because they will
need cash reserves to qualify and to fund a home building project.
Frequently, borrowers spend all their savings on their land, plans
and permits, leaving themselves cash poor. Also if you want to
take cash out of the property to replenish savings by refinancing
after construction you must "season" the loan for one
year. Another issue is that if you have spent a significant portion
of your reserves on lot acquisition, the loan may be more difficult
to make due to a lack of liquidity. Remember, if you do not yet
own the property and plan to build soon, the Construction/Perm
program will allow you purchase the lot or existing home with
your first draw.
3. I should get my
lot, plans and builder before I start worrying about the construction
How can you determine what and if
you should build or remodel without understanding the financial
impact! Unless you are going to build your project entirely from
your own savings, you will rely on funds from a lender. Many consumers
plan their whole project before consulting a construction lender.
They invest years of time and thousands of dollars, only to discover
they made vital mistakes along the way, restricting the financing
of their project or stopping it altogether. I will help tailor
your financial picture to meet current construction lending guidelines,
ensuring your qualification for the best and most appropriate
construction and permanent loan program.
4. I should buy my
lot, then decide what to build.
One of the major factors in current
construction lending guidelines is the appraised value of the
finished property. The appraiser evaluates the property for market
value and conformity with houses in the neighborhood. In order
to determine fair value for a lot, you need to make sure that
your home is consistent in size and quality with houses nearby.
Over or under building a neighborhood can cost you cash and equity.
The fair value for a lot can only be determined within the context
of a finished home. Many borrowers have purchased lots for what
they thought was a great price, only to find out that the home
they wanted will require significantly more cash than they have
available. I will work with you and the appraiser to make sure
the project makes sense for the property and neighborhood. Also,
remember the Construction/perm or Renovation loans will allow
you to use the first disbursement to acquire the lot or house
is you are planning to remodel.
5. I can start with
a small construction loan at the beginning and just finish the
project out of savings as I go. I should borrow as little money
as I can get away with.
There are many factors to consider
when determining the right loan amount. Many people consider their
home loan separately from the rest of their finances. A home may
be your largest asset, your largest liability and your best resource
for tax reduction. Your mortgage payment will insure or disrupt
your ability to sleep at night. The size and type of permanent
loan should be determined within the context of your entire financial
While the permanent loan size is
a factor in financing your home, it is less important than the
financial structure of the project itself. Between your savings
and the loan, you must have enough money to cover the entire cost
of the project plus any overages.
Unfortunately some building projects
run over budget. It is better to plan for more than you think
you need since you can always modify to a smaller permanent loan
if all of the available loan proceeds have not been spent.
6. Construction loans
are just like any other home loan. The best loan is the cheapest
rate and fee.
When you purchase or refinance a
home, the process is over when the loan funds. With a construction
loan, it is only beginning. The success of your project will depend
on how well the 6 - 12 month disbursement procedures meet your
finances and your builder's style. A problem in this area could
cost you months, thousands of dollars, maybe even your project.
The variables in qualifying for a construction loan are ten times
that of a purchase or refinance loan.
Lack of knowledge and experience
by some loan officers are the reasons that as many as 40% of all
construction loan requests are denied. Many lenders and brokers
dabble in construction, but have not processed enough construction
loans to understand the intricacies of the process. Our construction
loans are underwritten and closed by our construction department
employees who are not involved in any other type of lending so
that your loan will close and disburse correctly and on time.
That having been said, my expectation is that construction loans
of all types are extremely competitive with any other lender in
7. I have to sell
my home and rent before I can start building my new home.
We understand that you will probably
not have sold your current home before you begin building and
the fact is built into our underwriting guidelines. One method
of addressing the issue is to use a fair market rent calculation
to offset your current mortgage payment. Also, if you have a significant
equity in your current home which you need to unlock to begin
your project, I can help you with a refinance, equity line, or
second trust as your situation may warrant.
8. My house will be
worth no more than what it cost me to build it.
Most people have never experienced
the home building or remodeling process. No lender will
value the property based solely on how much money was put into
your project. We will account for the money you have contributed,
but the weight of the underwriting decision will be made on the
conservative appraised market value. Many clients find their new
home has appreciated in value significantly during construction
realizing instant increases in equity.