BUILD BUY RENOVATE Your guide to understanding and financing your new home
TURNERR@FNB-CORP.COM Table of Contents Your Dreams become reality 3 Overview 3 Why Construction / Renovation Permanent 4 Financing 5 How to begin 5 Personal Preparation 6 Pre- Mortgage approval 6 The Process Begins 7 Settlement 8 How the Building Disbursement works 9 Payments during Construction 10 Final Draw-Move In 11 2
SusanTurnerMortgage.com Turn your Dream Home into Reality with construction permanent financing. You have been dreaming of your new home for years, whether you are looking to build a custom home from the ground up, or renovate an existing one to meet your family s needs, we can help provide the resources you need to make them a reality. We can help make the entire process simple and easy to understand. We will hold your hand as your professional advisor through the entire process and provide you with expert guidance from the time you begin the process until you move into your new dream home and begin enjoying it for many years to come. Overview A Construction to Permanent Loan isn t too much different than a normal mortgage loan, other than your new home is not completed yet. Typically you can use the financing to acquire the lot and finance it along with the construction costs all into one loan. If you own the lot you have equity already. If you already own the property, we typically pay off any existing financing you have by rolling it into the new loan, also and depending upon the appraised value, we may be able to roll all of the costs including the settlement charges into the loan as well. 3
TURNERR@FNB-CORP.COM Why Construction Permanent Financing? In addition to obtaining the financing you need, you will have the security of knowing your dreams are secure. Cost Control Your interest rate can be locked in at time of application and remains fixed for the term of the loan, including the construction period. Depending upon the State your property is located in, you may enjoy substantial savings in transfer and recordation taxes as well. Options You can choose the type of financing you want at time of application, whether it is a fixed or adjustable rate mortgage. Convenience a True One Time Close Construction Permanent loan requires only one settlement. It is alll done up front so that all you need to do after settlement is built your new home, move in at time of completion and enjoy it! Beauty by design You will get to design your new home to meet the needs of your family s lifestyle and needs. 4
SusanTurnerMortgage.com How to begin Preparation The best place to begin is with your Construction Loan Officer. She can review your needs and educate you on the process and how much home you can afford. She can also provide you with down payment requirements and a total cost estimate which includes average payments during the construction period as well as your final monthly payments which begin after your new dream home has been completed. Personal Preparation Figure out your Budget with your loan officer and know your expenses. Make informed decisions to take the fear out. Know your credit score and protect it by not adding additional debt new credit cards or delinquencies. Hold off making any big purchases. 5
TURNERR@FNB-CORP.COM Pre- Mortgage approval and Commitment: The process of applying for a Construction Permanent Loan is similar to that of a typical mortgage loan. The only real difference is that because the house isn t completed, you may have several contracts for the property. As with any mortgage loan, we will request and review your financial history, credit, income as well as have your new home appraised up front as if it were completed. The typical items needed to complete your application are typical for most mortgage loans and are as follows; Last 2 Years Tax Returns, business and personal, as applicable Last 2 Years, W2 s and K1 s, as applicable Last 2 Months Bank, Investment and Retirement Account Statements Your most recent 30 days pay stubs Your House Plans, Specifications and Builder Contract Your lot / property contract, or if you already own the lot / property, a copy of the deed and settlement sheet Homeowner s Insurance with a Builder s risk rider 6
SusanTurnerMortgage.com The Process Begins, After Applying for the Loan. Within a couple of days after applying for the loan, you will receive a welcome phone call from the processor on your application. They will provide you with any additional disclosures required as well as review your information and ask you some clarifying questions and request any additional supporting information require to complete your request. Your builder is an approved builder with a Sound Financial Track Record. The Appraisal is ordered once we have the final plans and contracts to determine what the value of your new home will be after it is completed and we take care of ordering the title work. (Please note try to build in allowances for the home options versus being very specific right up front. The reason for that is that most clients end up making choices and changes as the home is built. Therefore we try to create a RESERVE and the line of credit (construction loan) established with this full one time closing of a loan will ONLY ACCRUE interest if and when the money is drawn. Should you not use all of the funds set aside into the escrow / reserve for your build out then you will never have to pay any interest on the unused portion. Your application will then move to the underwriting phase where your qualifications including the appraised value is confirmed. Once the loan is approved your loan moves into the closing department for settlement. 7
Settlement TURNERR@FNB-CORP.COM After your loan has been fully approved, the closing department prepares the documentation necessary for the title company to close your transaction. This is similar to a regular mortgage loan, with the exception of additional fees to cover the necessary progress draw inspections required when the builder calls the bank for money. Construction loans require that each time a builder is seeking a progress draw (to get paid for the work they have completed to date), we send out an independent inspector to confirm the work has been completed, in accordance with the house plans and specifications and of the County, City and State have approved it when necessary. This is done prior to releasing any funds to your builder to protect your s and the Bank s interest. Funds are not released unless the work has been completed. Funds are not release for materials on site. In some cases, depending upon the circumstances, the Bank may release up to 10% of the construction proceeds up front at time of closing, less any money you have put on deposit with builder to cover initial permits and site worked required to get started. This should be spelled out and agreed to in your contract up front as to the method of payment required. 8
SusanTurnerMortgage.com How the Building Disbursement works The disbursements during the construction process are typically requested by the builder when certain milestones of completion are made. The milestones are established up front prior to closing the loan. When the builder requests a disbursement, the Bank will contract an independent inspector to inspect the work in site to confirm the work has been completed. In some states which require it, the Bank MUST order a title update. If required, you will have to pay those additional fees. They are typically collected up front at time of closing and set aside for that purpose.. Once the report comes back, and title report if required, the funds are released to the builder via wire. This process will continue until your house is completed. The final inspection however, will require the builder to provide a Certificate of Occupancy which is a certification from the State and or County Jurisdiction that your new home is completed and suitable to live in. The final disbursement is always 10% of the construction costs regardless of the status of completion. The final disbursement is held back until the house is 100% complete to protect your interest. You will be asked to certify the house is complete prior to the Bank making this disbursement. 9
TURNERR@FNB-CORP.COM Payments during Construction While your new home is under construction, you will be charged interest on a monthly basis based upon the average outstanding balance for the month prior. You will only be charged for money disbursed, not the funds held in the Bank s escrow account. You may be responsible for other charges as follows; Additional inspection fees should the builder require more than collected at time of closing Any late charges should you not make your monthly payments on time Since property taxes and insurances are not collected up front or during the construction process, if they become due, you must pay them yourself. At time of completion, when the loan shifts over to the repayment phase, the Bank will request that you fund the escrow account and begin contributing on a monthly basis as part of the overall monthly payment. Construction Loans Are Like A Big Credit Card 10 The best way to think about a construction loan is to compare it to a giant credit card that only lasts until the home is built. At that point, you then get a mortgage for the house you ve built, which will pay off the balance of your construction loan. There are no prepayment penalties with a construction loan so you can pay off the balance whenever you like, either when it comes due or before then (if you choose to). You will never pay interest on what you do not use, and at completion, the loan will roll right into the products and terms you chose (rate) up front. NO costs - NO penalty - and NO updates. BEST of all worlds financing! GET FIRST ADVANCE FOR LOT AND CLOSING COSTS GET ADVANCE FOR FRAMING PACKAGE, ROOF, HVAC, PLUMBING & ELECTRICAL GET ADVANCE FOR CABINETS, COUNTERTOPS, INTERIOR PAINTING AND LANDSCAPING GET ADVANCE FOR FOOTERS, FOUNDATION AND SURVEY WORK GET ADVANCE FOR SHEETROCK, FLOORING, EXTERIOR MATERIALS Interest rates are also calculated differently: with a traditional loan, the lender will sell your loan to investors in the bond market, but with a construction loan, we refer to them as portfolio loans (which means we keep them on our books). We have the freedom to negotiate the right interest rate based on several factors. It s not like an auto loan where you walk into the bank and look at the rate sheet on the wall that shows today s interest rate (which could change tomorrow). I have the ability to look at the big picture and determine a rate based on many factors, including your credit, financial history, income and project equity.
SusanTurnerMortgage.com Final Draw and Conversion to Permanent-Move In When your beautiful new home has reached completion and the builder has requested the final draw, we will need to get certain items in order to transition your loan to permanent as follows; The Final Inspection confirming your new home is completed. The Use & Occupancy Permit which the builder is required to obtain from the local jurisdiction to confirm your house is habitable and you have the permission to reside there. A final Completion Acceptance Agreement executed by both you and the builder certifying the house is complete per your agreement. Please note, various punch out items and minor loose ends that may be in process of being completed may be exempt. An example would be a nail pop, or a missing cabinet knob, etc.. A final lien waiver from the Builder A Title Update to confirm no liens other than the Bank s mortgage loan are against the property. Your insurance policy to be updated to a Homeowner s Policy without the builder s risk rider showing you have paid the premium for the next full year. Permanent Phase Mortgage Payments Once the Bank has disbursed the final draw to the builder, your loan will automatically convert to permanent status. Thirty days afterward, you will have to begin making regular monthly payments (Principal & Interest, as well as escrow for taxes and insurance, unless you paid for a waiver up front at time of settlement on the loan). You will also receive at this point, an escrow contribution catch up letter. You should budget for this up front as we do not collect for escrows at closing, nor during the construction phase of the loan. Susan Turner First National Bank 1000 Bestgate Rd. Suite 200 Annapolis, MD 21401 Phone: (310) 651-2174 Email: TURNERR@fnb-corp.com NMLS # 763571 First National Bank FNB NMLS 763571. FNB and its subsidiaries are equal housing lenders. All loans subject to approval, this from is for presentation purposes only and not an offer to lend. Information is subject to change without notice. 11
301-651-2174 TURNERR.FNB-ONLINE.COM SUSANTURNERMORTGAGE.COM TURNERR@FNB-CORP.COM Top Producing Nationally Ranked Professional Loan Officer Continually Ranked in the Top 1% Nationally for 13 years