CONSTRUCTION LOANS
1st Florida Lending Construction Lending
Construction-to-permanent loans aka (One-Time Closing) and ground-up construction loans are two
different types of financing options for individuals looking to build a new home or property. Let me provide
you with more information on each of these loan types:
1.
Construction-to-Permanent Loans (One-Time Closing):
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A construction-to-permanent loan is a type of mortgage that covers both the construction phase and
the permanent financing of a new home.
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It is often used by U.S. citizens to finance the construction of their primary residence.
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The process typically involves two phases: the construction phase and the permanent mortgage phase.
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During the construction phase, you receive funds to pay for the building of your home. These funds are
usually disbursed in installments as construction milestones are reached.
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Once the construction is complete, the loan automatically converts into a traditional mortgage,
eliminating the need for a second loan.
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The interest rate and terms for the permanent mortgage are determined at the outset of the loan,
providing stability to the borrower.
2.
Ground-Up Construction Loans
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Ground-up construction loans are loans designed for the construction of commercial and investment
properties from the ground up. This type of loan is not limited to U.S. citizens and can be available to
foreign nationals.
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Foreign nationals who wish to obtain ground-up construction loans in the U.S. may encounter some
additional challenges and requirements compared to U.S. citizens. These can include providing
documentation related to immigration status, credit history, and other financial information.
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Lenders offering ground-up construction loans to foreign nationals may have specific programs and
criteria in place. It's important to research and connect with lenders who specialize in working with
non-U.S. citizens.
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The terms and conditions of ground-up construction loans for foreign nationals may vary depending on
the lender, the borrower's financial situation, and other factors.
Construction Lending and Products
1st Florida Lending offers a variety of loan options to make it easy for you
to select the product best for you and your build.
Conventional
During the construction phase of these types of loans, Borrowers pay a monthly interest payment based on
the amount of construction funds used to-date (construction funds are accessed through “draws,”
explained later below), along with private mortgage insurance and an escrow payment for real estate taxes
and insurance, if required.
VA Loans
During the construction phase of VA loans, the builder pays a monthly interest payment based on the
amount of the construction funds drawn to-date, along with a payment for real estate taxes, hazard
insurance, or builders risk insurance.
Conventional One-Time Close - Min 5% Down Payment
Our Conventional One-Time Close Loan offers the Borrower a one-time construction purchase or refinance
within conforming loan limits, reducing fees paid by the Borrower. The loan allows 10 months for the home
to be completed with a minimum down payment of 5%.
VA One-Time Close - Zero Down Payment
The VA One-Time Close Loan offers the Borrower a one-time close construction purchase of a primary
purchase up to a $4 million loan limit, reducing the fees paid by the Borrower. The VA One-Time Close Loan
allows 10 months for the home to be completed with 100% financing. You must be an eligible VA Borrower.
Benefits of Our One-Time Close Construction Loan Programs
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Eliminate the need to acquire multiple loans to finance your dream home construction.
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Our one-time closing means one set of closing costs.
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Avoid interest rate fluctuations and risks because we lock and close your loan before construction
starts.
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Work with our trained Mortgage Bankers for assistance in picking the right options for your personal
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construction loan.
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On-Site Underwriting Construction Project Department
Construction lending consists of providing financing for the construction of a new residential structure on
property either already owned by the Borrower or purchased concurrently with the loan closing.
Underwriting has an on-site Underwriting Construction Project Department to assist with the builder
acceptance, project acceptance, and draw administration for your loan.
Getting Started
To get started, make an appointment with your Mortgage Banker. The Mortgage Banker will guide you
through the steps to get pre-qualified.
The Lending Process
The Mortgage Banker will review your credit and financial information to help you determine how much you
are comfortable spending on your new home build. 1st Florida Lending will provide all the information you
need to help you make a well-informed, confident decision about the home build process.
Pre-qualification for a construction loan is based on several factors, including:
1.
Your overall financial situation based on the initial financial documents you provide to the 1st Florida
Lending
2.
A rough estimate of the construction costs provided by you, your real estate agent, or builder.
Once again, except for a few additional pieces of information, applying for a construction loan is similar to
applying for any other type of mortgage?
Initial Financial Documentation
During the initial process, your loan officer will request supporting documentation such as, but not limited
to, tax returns, paystubs, and bank statements.
Loan Estimate
Once the application is submitted, you will receive an initial Loan Estimate. The Loan Estimate provides
you with an estimated interest rate, monthly payments, taxes and insurance, and cash required at closing.
Rate Lock
This means you and 1st Florida Lending have a written agreement on your loan’s interest rate and discount
points. It protects you from an increase in rates between now and your closing. If rates rise, we won’t
assign you a higher rate. If rates dip, you won’t get a lower rate.
Loan Approval
Once 1st Florida Lending has received all the necessary documentation/information, an impartial
underwriter will review your loan application, income and asset documentation, credit report, property
appraisal, etc., for approval of the loan itself. The underwriter ensures the criteria for approval are met for
the loan program under which your application was received. Sometimes the underwriter will request
additional documentation to aid in their
decision making.
We realize the anxiety inherent in this part of the approval process, and we will make every effort to make a
final decision as quickly as possible. The end result of the loan approval process, we all hope, will be an
approval notice outlining the conditions that must be met either prior to or at loan closing. Reach out to
your Loan Officer to clarify anything you do not understand or answer any questions.
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Reservation Process
The reservation process consists of a preliminary reservation of funds that are anticipated for construction
and a final approval of the reservation of funds. This is not to be confused with the rate lock. Once you
have signed the appropriate disclosures, we can apply for a preliminary reservation of funds, which expires
30 days from the date of application. If the loan is not approved within 30 days, the preliminary reservation
will be cancelled. If the loan is approved, you will receive a final reservation of funds.
Builder Acceptance
Selecting the right builder is a key to success in the construction of your new home. As the customer to
the builder, it is your responsibility to exercise due diligence in choosing a builder. 1st Florida Lending
cannot recommend any builder or assist with builder selection but can make recommendations for
selecting a reputable builder:
Get recommendations from family, friends, and neighbors.
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Talk to your real estate agent.
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Research social media and Better Business Bureau complaints and ranks.
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Ask a lot of questions about their experience with this type of project.
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Request at least three estimates and timeframes for completion and compare.
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Ask to see photos of completed projects.
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Ensure the builder is licensed, insured, and bonded.
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Ask for referrals from the builder.
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Ask about their quality control process for subcontractors.
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Use someone who is professional and answers all the questions you ask.
After a licensed and insured builder is selected, submit the following
information to 1st Florida Lending to start the builder acceptance process.
Builder Information Needed
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Builder Name and/or Company Name
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Builder Address
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Contact Person and Contact Information
The underwriting Construction Project Department will contact the builder to obtain additional
documentation. 1st Florida Lending will do our due diligence and request and research the following.
Builder Documentation Needed for Acceptance
1.
Builder Acceptance Package
2.
Builder license
3.
VA Builder ID for VA only
4.
W-9 form
5.
Written overview of company experience
6.
Two closed examples of recent build times less than 12 months with the build price range
7.
(Certificate of Occupancy and seller CD)
8.
All construction agreements and/or disclosures signed
9.
Liability insurance policy with a minimum of $1 million and must list certificate listing underwriting as
additionally insured.
10.
Builder’s risk insurance to include additional coverage for flood insurance (if applicable)
11.
Worker’s compensation policy with the coverage listed and the certificate listing underwriting.
12.
Statement of Exemption from worker’s compensation.
IMPORTANT
Our acceptance of a builder is not an endorsement of that builder, but rather an acknowledgement at the
time of our review they met our standards for participation in our construction programs in terms of
licensing, insurance coverage, timely payments to subcontractors and suppliers, etc.
Project Acceptance
Project acceptance is based on the loan product and allowable features of the construction loan. Once the
builder acceptance is completed, you and your builder will need to agree and execute a draw schedule for
the construction budget. 1st Florida Lending will order an appraisal to get an estimate of what the
property value will be once the construction is complete based on plans and specifications provided by
your builder. Appraisals are conducted by highly qualified, licensed appraisers who are familiar with
construction financing in your area and are a
requirement of the loan approval.
Construction Kickoff Call
The Underwriting Construction Project Department will coordinate the kickoff call prior to the loan
closing with you, your builder, 1st Florida Lending and underwriting review the construction lending
process and all of the steps necessary to ensure a smooth construction project.
Loan Closing
Loan closing is the point at which the final loan documents are signed. This appointment often takes place
at a title or escrow company but can also take place elsewhere. You, the Borrower(s), will attend closing
with a settlement agent. Any cash down you bring to closing will be used to acquire or pay off the lot or
may be disbursed to the builder as a draw at closing. Any excess down payment funds not needed at
closing will be held in an escrow account and disbursed as work is completed.
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Lot Loan Purchased Separately
If you purchased the lot separately and not from the builder as part of the construction transaction, and if
you obtained lot financing when you purchased the lot, we will pay off any outstanding amount at closing.
The disbursement of funds at closing for this purpose is not considered a draw. Note: There may be other
funds disbursed at closing for certain construction costs that will be considered a draw.
Draws at Closing
A builder may wish to request a draw at loan closing to provide funds for initial materials or for special
order items that require payment at the time the order is placed (e.g., custom cabinetry). It can also be
used to reimburse you for items you paid for in advance or deposits that may have been needed to start
the project.
Accessing the Funds
A draw at closing is the only opportunity to access construction funds for 10 business days following the
loan closing. A limit of 10% of the budget or $50,000, whichever is less, is placed on this draw. After the
loan closes, you are ready to begin construction! As work begins, 1st Florida Lending will help you to
understand how to request funds to pay for completed work.
Understanding Construction Draws
Construction draws are periodic advances taken against the credit line for the builder to pay for materials
and subcontractors as work on the house is completed. Once your loan has closed and construction has
commenced, you will need to submit draw requests to access loan funds as the work progresses. The
underwriting Underwriting Construction Project Department will handle the transaction. Here is a look at
the process for a typical draw request:
1. Draw Request:
A Construction Draw Request Form: All draws, including a draw at closing, require the completion of a
Construction Draw Request Form. A Draw Request Form is used by the builder to request funds from the
construction account for completed work. The Draw Request Form must be executed by the builder and
Borrower(s) before any funds can be disbursed. This form must list the line items of the budget from which
the funds are to be drawn. The underwriting Construction Project Department will send an email
acknowledgement within 24 hours of the draw request. Your Loan Officer can call the Underwriting
Construction Project Department if the builder does not receive this notice.
2. Draw Inspections:
With every draw request, the Underwriting Construction Project Department will order a site inspection.
The inspection is provided to 1st Florida Lending to confirm the work completed by the builder. The
Underwriting Construction Project Department will also confirm with the title company no mechanic liens
have been filed by the builder on the property.
3. Disbursement of Draw Funds
Upon receipt of clear site inspection and title update, funds are wired directly to the builder.
4. Funding Notification
The Underwriting Construction Project Department will send a funding notification after the draw is
funded. In most cases,
the designated party will have funds within 7-10 business days of submitting a complete draw request.
Additional Requirements
All Construction Loans
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Required permits. Permits are required prior to closing.
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Regular updates. Work must begin within 30 days of the loan closing and may not stop for a period
greater
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than 30 consecutive days.
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Change orders. If the original scope of work needs to be changed, a written Change Request Order form
must be submitted to 1st Florida Lending for approval prior to the work being performed. Significant
changes to work may impact value and loan terms.
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Contingency funds. Contingency funds will be used for any change orders and/or overages.
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Monthly payments. Monthly payments must be current at the time of draw requests.
Additional Requirements Final Draw
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Final inspection and/or appraisal update showing the project is 100% complete.
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Final inspection and/or appraisal update must show the market value has not changed.
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Clear title update.
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Certificate of Occupancy.
Mechanic Liens
In certain states a subcontractor or supplier is required to give notice to the property owner, builder, and/or
mechanic lien agent of their intent to file a lien; this is one way in which a subcontractor or supplier can
advise a property owner they are working on their project. The subcontractor and supplier are not required
to notify 1st Florida Lending. Because of the possibility that these liens can affect our primary lien
position and/or the completion of your project, it is important that all notices received will be forwarded to
our Underwriting Construction Project Department immediately.
Builder Disputes/Changes
It is certainly not unheard of for homeowners and builders to find themselves in disagreement at times
during a construction project. There can be misunderstandings about the scope of work that the builder is
to perform, differences of opinion about the quality of work, complaints about the time it takes to complete
a job, and many other potential disputes. As your construction lender, our role is to provide financing for
your project and to ensure the builder meets our standards for licensing, insurance coverage, etc. We are
not a project manager, nor are we able to act as a mediator or referee in disputes between you and your
builders.
Builder Changes
Builder changes on a new construction loan should only be required in exceptionally rare circumstances
and are subject to 1st Florida Lending and underwritings approval. Please contact your loan officer for
more information or by email at support@1floridalending.com
Extension Request
In the event construction is not completed by the deadline, you and your builder may request a formal
extension for exigent circumstances or for reasons beyond your control. An extension request 45 days
prior to the completion date is required.
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Two 30-day extensions are allowed.
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You must complete the paperwork and return it to us with the reason for delay.
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An extension fee will be required.
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No refund is provided if the work is completed sooner.
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No additional draws will be processed if your loan has exceeded the predetermined construction period
until we have received the extension paperwork and appropriate extension fee.
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The total construction time including extensions must not exceed the allowable timeframe for the
construction loan product.
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Extension approvals are the sole discretion of 1st Florida Lending. Any extension request over the 12-
month period will require additional fees.
End of Construction and Permanent Financing
One-Time Close
At the end of the construction phase, final draw funds are disbursed and any construction funds
remaining, e.g., unused contingency funds, will be applied to the outstanding principal of the loan. One-
Time Close construction loans will convert to the fully amortized permanent phase and payments will
include both principal and interest and taxes and insurance, if applicable. When work is finally completed
you will be required to sign loan modification documents to change the beginning date of the permanent
phase of your loan and the maturity date. Please note you will be required to pay any taxes, homeowner
insurance, flood insurance (if applicable), escrows, and fees at the time of modification.
Two-Time Close
At the end of the construction phase, final draw funds are disbursed and any construction funds
remaining, e.g., unused contingency funds, will be applied to the payoff balance of the loan.
For Two-Time Close construction loans, the permanent loan will have to process and close to become fully
amortized, and at that point payments will include both principal and interest and taxes and insurance, if
applicable. The permanent loan payments will be based on the term and interest rate you selected with the
applicable program. Credit will be repulled, and updated income, assets, employment documentation, etc.
will be required within 60 days of the construction being completed. Please note you will be required to pay
any taxes, homeowner insurance, flood Insurance (if applicable), escrows, and fees at the time of closing,
as well as any closing fees associated with the permanent loan. After conversion, you will pay on the loan
each month as you would any other mortgage or refinance, when appropriate.
Glossary of Terms
The following section is a glossary of terms used in construction lending. Sometimes the unique
terminology used by builders, lenders, and service providers can seem like another language. We hope this
glossary will provide some clarity to help you navigate the construction lending process.
Change Order An official recognition of a change to the construction plans and specifications, and to the
project budget. Changes are additive only, meaning that everything included in the original plans and
specifications will be completed as planned, but there will now be additional or new work added that was
not originally contemplated and can be made without requiring a new appraisal. Subject to approval.
Draw Request and Form The Draw Request and Form are used to request funds from the construction loan
funds. Subject to approval.
Line Item A line item is a part of the construction budget that shows the amount budgeted to complete a
particular component of the home.
Title Insurance and Mechanics Lien Coverage Title insurance for loans issued with Mechanics Lien
Coverage is required for all construction loans. Mechanics Liens occur when the builder fails to pay their
subcontractors. The construction project must be insured in case this occurs.
Permits An authorization from the local building authority to begin work on a construction project.
Request for Change Order A form used to move funds from one line item to another in the construction
budget.
Site Inspection On-site review of the progress of the construction project by an appraiser to determine
whether the work or materials requested on the draw form.