Construction questions? We’re here to help! (Part 2)
There is much to consider before beginning a construction project, such as loan costs, lot financing, and insurance policies. We’ve answered some of the most frequently asked questions to help!
Is an Appraisal necessary? How is “value” determined?
Yes, an appraisal is necessary. Since the home is not yet built, the appraiser will consider the construction contract, plans, and specifications and then searches to include a number of comparable sales within the area during the last six to twelve months. Under most circumstances, “Value” for the sake of financing, is the lower of total costs or the appraisal amount.
What can I expect for payments during the initial Construction period?
Interest on the outstanding principal balance. You can choose to pay principal as well.
Does Great Midwest Bank offer Lot financing?
Yes. However, to avoid paying two sets of closing costs, it’s best to try and close on the Lot purchase and Construction Loan at the same time.
I previously purchased and financed a Lot. Will that payment continue?
The remaining mortgage balance on your lot will be refinanced into your new construction loan so you will have one payment during and after construction.
How does the draw process work?
The Builder’s schedule usually accounts for 4-6 construction draws. The dollar amount of each draw will vary depending on the work being done. You must first approve each draw after a title company has verified the work performed. The request is forwarded to the bank who in turn provides funds to the title company. They then disburse those funds to the builder, who is responsible for paying each subcontractor and material provider.
Why is a Title Company involved in the Construction process?
A title company is used to administer the construction draws as a neutral party to both the builder and the lender. By inspecting the project each time a draw is requested, the title company ensures that all work necessary is being completed and contractors are paid as planned.
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.
How quickly can I be approved?
Pre-approvals can most often be expedited in a day or two upon receipt of your financial information.