How does the construction loan process work?
The construction loan process consists of two components — the time during construction (also called the draw period) and the time after construction (the permanent mortgage period).
DURING CONSTRUCTION (Draw Period)
- You will pay the contractor 4-6 times throughout the building process. These payments are called “draws.” You will approve each draw and then we will release funds to the title company who will pay the contractor.
- During the draw period, you are only responsible for interest payments on your loan.
AFTER CONSTRUCTION (Permanent Mortgage Period)
- After construction is complete, your loan will be refinanced into a permanent mortgage
- Forte Bank offers both fixed- and variable-rate permanent mortgage options
SPECIAL DOCUMENTATION AND APPROVALS
A construction loan requires all of the financial documents of a conventional mortgage with a few extras. In addition to reviewing and approving your builder, Forte Bank requires:
- Project plans and specifications
- Construction contract
- Construction cost breakdown
For more information about the process, please get in touch with one of our lenders.
Can I get a lot loan?
Yes. If you’ve found the perfect piece of land for your future home, but you’re just not ready to build yet, then a lot loan is the right product for you.
How long does it take to get pre-approved?
We understand timing can be critical, so we do our best to provide preapproval letters in one business day or less after receiving your financial documents. Many times, we don’t need to meet with you to review your financial history. We can speak over the phone or via email and you can provide your financial documents electronically via our secure upload center.
What paperwork do I need for a construction loan pre-approval?
- Two years W2’s
- Two years federal tax returns (for self-employed borrowers)
- Last month of paystubs
- Two months of recent bank statements (all pages)
- Most recent retirement statements (all pages)
- Builder contract (if available)
- Lot purchase agreement (if applicable)
- Prior title commitment on land (if applicable & available, along with any available land surveys)
Why is a title company involved in the construction process?
During home construction, a title company is used as a neutral party between you, the contractor, and the financial institution. The title company monitors the construction progress and after ensuring the work is being completed as planned, administers the draws.
What kind of homeowner’s insurance is necessary?
We require homeowner’s insurance coverage equal to at least the amount of your loan. In addition, a “builder’s risk endorsement” at a small additional cost is required for all construction loans.
What is a draw and how does it work?
You will pay the contractor in increments as work is completed on your home. These payments are called “draws.” You will approve each draw, and then we will release funds to the title company who will pay the contractor. During the draw period, you are only responsible for interest payments on your loan.
I previously purchased and financed a lot. Will that payment continue?
We will refinance any remaining mortgage balance on your lot loan into your construction loan so you only have one payment during and after construction.
What will my loan payment be during the construction process?
While your home is being built, you will only make payments on the interest on your outstanding principal balance. You may choose to pay towards the principal if you’d like.
Will you do an appraisal on my new home? How do you determine what it’s worth?
Yes, all financial institutions need to appraise a home before issuing a mortgage, even newly built homes. The appraiser will use the construction contract, design plans and comparable existing homes sold in the area to determine the home’s worth. The value will be confirmed once building is complete. For financing, we will use either the total construction costs or the appraisal amount, whichever is lower.
What is owner’s title insurance and do I need it?
Owner’s title insurance provides protection to you if someone sues and says they have a claim against the property from before your purchased it. It ensures that you will be free from claims, liens or judgements on the property other than the mortgage filed as part of the construction loan. The one-time cost is included at closing and is valid for the duration of your ownership. If you already have owner’s title insurance on your lot, it may just need to be increased to include the cost of your completed home.
How much does a construction loan cost?
In addition to title company draw fees, closing costs are typically around $1,800 plus a one-time fee for optional owner’s title Insurance. The cost of this insurance is based on a standard statewide schedule. Ask a mortgage lender for details.
Can I build a home before selling my existing home?
You may qualify for a construction loan before selling your existing home if you have some money saved for a down payment. We will need to ensure your monthly income supports both mortgage payments and any other monthly expenses. One of our mortgage lenders can also talk with you about using a home equity line of credit on your existing home.
Will the equity in my lot be included in my down payment?
Most likely, as the appraisal will take into consideration the current land value.
How much money do I need to put down for a construction or lot loan?
Our construction loans require as little as 10% down and our lot loans require 20% down.
When can I lock into a fixed rate? Are there extra costs?
You may be eligible to apply for a fixed-rate refinance as the home nears completion. We often can use the original appraisal for this purpose. Ask your Loan Officer for more details.
What construction products does Forte Bank offer?
We offer a 12-month fixed-rate construction loan. The rate is locked for the entire term. Ask a mortgage lender for our current rates.