How you finance the construction of your new home is one of the most important things to consider. Colonial is a leader in home construction lending, specializing in Single Close Construction Loans. We are known for our exceptional customer service, and we understand the needs of both the home buyer and the builder.
Colonial's Single Close Construction Loan takes you from groundbreaking to move-in, in one easy process. At Colonial, you will be working with construction loan specialists who are able to answer your questions and the questions of your builder/contractor so that your home construction keeps moving smoothly with no surprises along the way.
A Loan Program to Meet Your Needs
Colonial has a Single Close Construction Loan designed to build a primary residence or second home. Single Close means one loan – start to finish. You sign one set of loan documents that covers both the interim construction phase and the permanent loan. This eliminates the need for multiple loans to get into your new home. With a single loan, you can purchase the land for your home and complete the construction. When construction is complete, the loan converts to a permanent mortgage loan, saving considerable time and money. The construction period varies from 8-12 months depending on loan program to allow time to build the new home and sell the existing home.
What makes up the Construction Loan Costs?
There are a number of costs that go into building a new home:
You may purchase the land you have under contract at closing with proceeds from the Single Close Loan, or you may have already purchased the land and have a loan to be paid off with proceeds from the Single Close Loan. Or, you may own the land free and clear.
Permit fees, engineering fees, architectural fees and other costs associated with building the home, but not directly part of the actual construction costs.
The tangible costs associated with the actual construction of the home. This includes materials and labor costs.
Sums included in the construction budget for items to be selected in the future, such as flooring, cabinetry.
A reserve account covers unforeseen costs or upgrades in the construction of the home. An additional 10% of the construction costs will be established in a Contingency Account for cost-plus contracts. A Contingency Account is recommended on all contracts to cover change orders or upgrades. Differences between budget allowances and actual costs are usually handled through change orders.
The total cost consists of all of the above.
If lot is owned by Borrower prior to loan application, the loan will be considered a refinance. The Loan-to-Value will be calculated from the requested loan as a percentage of the total appraised value of the lot plus improvements. In many cases the Lot Equity will reduce or eliminate the required down payment.
How Does the Construction Loan Process Work?
The Single Close Loan process is very similar to a standard purchase or refinance transaction. But unlike a purchase transaction for an existing home, the Single Close Construction Loan involves determining the value of a home that is not yet completed. To assist the appraiser and the lender in determining future value, information must be provided on the planned home, such as final plans and specifications and the total budget to complete the project.
Final Plans and Specifications
These consist of a legible set of architectural drawings, or building plans. They must include a floor plan showing all dimensions and outside elevations, along with drawings of the exterior. In addition, the builder should provide a detailed description of the materials to be used in construction of the home; for example, wood shingle or lightweight tile roofing; brick or stone exterior. This information will be provided to the appraiser who will determine value, subject to completion per plans and specifications.
This is the agreement between you and the builder/contractor that details the planned construction project, the agreed upon cost and the construction term to complete the project. The final plans and specifications should be an attachment to the construction contract.
Detailed Line Item Cost Breakdown/Draw Schedule
This schedule is prepared by the builder/contractor and should include all costs associated with the construction. The total should match the Construction Contract total. The Draw Schedule is used to advance funds to the builder as work is completed.
Single Close Worksheet
This form is used to consolidate all the costs. The form is also used to determine the maximum loan amount available and funds needed for closing. Your Colonial Consultant will prepare the Single Close Worksheet for review and discussion.
This form requires information that is supplied by the builder and is used solely for the benefit of Colonial to determine eligibility for our program. Selection of the builder is the exclusive, independent decision of the borrower.
How are Draws Disbursed From my Construction Loan?
Draw disbursements or progress payments are made on a work-completed basis and occur over a period of time as the work progresses. The builder will submit draw requests directly to Colonial's Construction Department, itemizing the work completed and the amount requested for payment. The percentage of work completed is determined by an independent third-party inspection service. Your builder will designate a construction bank account at a financial institution and disbursements will be wired directly to that account after receipt of the inspection report. As a convenience to you, a copy of the disbursement statement may be sent to you either via email or regular mail each time your builder makes a draw. This statement indicates the amount of funds disbursed and funds remaining on the project.
The initial disbursement at closing includes the payoff of the lot (if applicable) less your down payment, if any. Also, a start-up draw may be disbursed to the builder immediately after closing is finalized.
The cost for special order items may be funded up to 50% of the line item on the draw schedule, when accompanied by a request from the builder together with supporting invoices.
The final draw to the builder will be paid upon completion of construction and receipt by Colonial of a final appraisal inspection, a "clear endorsement" from the title company, a final survey if required, homeowner's insurance policy, and any other documentation as may be required for your particular loan.
If you have not already selected and purchased your lot, location is one of the most important factors to consider. There are realtors who specialize in finished lots as well as developers who sell finished lots. Many builders also have lots in inventory. A current survey of the property indicating all easements and rights of way will be required for closing.
Planning Meeting with Builder and Architect
Building the custom home begins several months before you break ground. You may start by meeting with a builder or architect. Many builders have architects on staff or certain architects they regularly work with. Keep in mind that each plays an integral role in the process and will work together to help make your vision a reality.
Meet With the Lender
It's never too early to meet with your construction lender. A construction lending specialist can help in planning for your future investment.
You must have an adequate down payment or equity at the time of closing. Equity is defined as cash paid towards the lot or construction costs, both hard and soft.
Up to 12 Month Construction Phase
Enjoy a construction phase of up to 12 months* with interest-only payments while you complete your new home. You will be charged interest only on the funds disbursed.
- The interest-only construction phase of your financing may continue past your home's completion and your move-in, up to 12 months from loan closing.
- Take Up to 12 Months* to Sell or Lease Your Current Home – If you currently own a home, you do not have to sell it before you start a new one. Close on the Single Close Construction Loan and have up to 12 months to sell or lease your current home prior to loan modification. No need to
- Loan Modification – The Single Close Construction Loan allows for a modification option, which is available upon completion of construction of your home, or up to 12 months after loan closing.
Once construction is complete you may move in. If your home is completed early you may opt to continue making interest-only payments through the end of the construction period, or you may modify your loan to begin making permanent loan payments.
* Construction terms from 8-12 months are available depending on loan program selected.
Ready to Get Started?
The Single Close Construction Loan from Colonial is a better way to build your home. For detailed information on your home construction financing, contact your Colonial Representative or call 817-390-2246.