Your Construction Loan Questions Answered
It’s normal to have a lot of questions about the construction loan process. To help you get started, we put together a list of the most common mortgage questions and their answers.
When you’re ready to take the next step and talk with a loan officer, let us know. Life Mortgagehas experts to guide you through the mortgage process and help you select the best loan for your situation.
Who is my Life Mortgagecontact after my construction loan closes?
Your loan officer will continue to be your contact. Shortly after your loan closes, they will send you a welcome email with details on your construction project. At any time, you are welcome to contact the construction department at Mann Mortgage at firstname.lastname@example.org if you need additional assistance.
What is “Built”?
Built is the online site where you can review your construction budget, submit draws, and upload draw documentation. You will receive an email from Built within 72 hours of your construction loan being funded. Your builder will also receive a Built account so they can review hard costs for the construction and request draws for substantial completion of their work. Before any of their draw requests are funded, you will be required to e-sign the request.
What is a “draw”?
A draw is a payment made from your construction loan to cover the cost (or costs) of materials, contractors, and subcontractor fees. Draws are requested monthly, bi-weekly, or as needed.
When would I request a draw?
Request a draw when a provider (as example, a well pump company, septic tank service, or excavator) requires a deposit to schedule their service or when they submit an invoice to receive payment for their completed work.
How do I request a draw?
Log into your Built profile and submit a draw request (be sure to add any documentation such as receipts or invoices) for the line items you are looking to pay. Your request will be received and reviewed by the Mann Made team. If a site inspection is required before payment (to ensure the work was completed based on the bid process), they will have the inspection done within 2-3 business days, and then the payment will be made. Note: Permit fees and appliances do not require an inspection.
How many draws can I request at once?
You can only have one draw request open at a time. However, you may request as many line items as needed within the draw. If you already submitted a draw and would like to add another line item to it, please email the Mann Made team (email@example.com) and we will adjust the draw request for you.
Can I request reimbursement for an expense I paid for on my own?
Yes, if the expense (or expenses) you are seeking reimbursement for are included within your construction budget or qualify for contingency usage. When you submit the request, please be sure to provide proof of payment and instructions on how you would like the be reimbursed.
How long will it take for requested funds to be received?
If you submit your draw request correctly with all necessary documentation, fulfillment takes about 7 business days. Draws that do not require inspection can be processed within 3 business days.
What is a construction loan contingency?
A contingency is money set aside to protect against future unexpected costs associated with the home’s construction. These funds will be held by the lender, Mann Mortgage, and dispersed only with Mann’s approval.
What can I use contingency funds for?
Until your project is at 80% completion, the funds can only be used for unforeseen costs that would prevent you from moving forward with construction. As example, to pay for increased lumber costs, permitting that costs more than anticipated, or additional land surveying to obtain permitting. After your project is more than 80% complete, the funds can be used to upgrade items.
What happens to unused contingency funds?
Any line item within your construction loan that goes unfunded will be applied to the balance of your loan prior to finance.
How are my loan payments calculated?
Your construction loan is a line of credit, much like a home equity line of credit. You will be billed for interest only payments based on the amount drawn monthly. In the beginning, this may only be closing costs and the purchase of your lot (if applicable). Interest payments will increase steadily over the course of your project as you request further draws from your loan. Towards the end of your project, the interest will include all builder and subcontractor draws for their completed work as well as the draw requests you have made.
When are my monthly payments due?
Payments are due by the 10th of the month. You will receive a statement for each month’s payment (by email and U.S. mail) on the 20th of the month prior. Your payment can be made by mail (please follow the mailing instructions on your statement) or online. However, if you elected to finance your interest in a reserve and make no out-of-pocket payments, you will receive a monthly statement and the interest will automatically be deducted from your reserve every month.
When will my loan convert from a construction loan to a mortgage?
45-60 days before you receive a certificate of occupancy is when the conversion process will begin. This is called a 4th stage draw. At that time, your loan officer will send you an itemized list of documents required for the loan such as recent income documentation, banking statements, new appraisal, and a fresh credit report.
What happens to the construction loan money I don’t use?
Any unused funds are applied as a credit on your mortgage and lower your final mortgage amount.
What if I need my loan to go past the loan expiration date?
If you have a 1-time close construction loan and your home is not completed after 10 months, you will have to refinance your loan as a 2-time close. This will allow you to go another 8 months (18 months total). If you are in a 2-time close and you are unable to finish your construction in 18 months, you must pay off your loan or refinance it.
Can I complete any of the construction work on my own?
You are not allowed, under any circumstances, to complete line items on your own as DIY projects. Doing so may lower your home’s appraised value, your work may not meet county standards, and your home may not pass final inspection to receive your certificate of occupancy.
What will my interest rate be when my construction loan closes?
If you are in a 1-time close loan program, if the market rates fall during the lock period you may have the option to reduce the interest rate on your loan (this is called a “float down”). If interest rates increased, you are guaranteed the original interest rate you qualified for. In a 2-time close loan program, your interest rate will be locked at whatever the current market rate is at the time of each close.
Can I use my construction loan to pay property taxes?
No. If your annual property tax is due during construction, you are required to pay it in full without using funds from your construction loan (if your property taxes for the construction site are or become past due, draws from your construction loan will be halted until you pay the property taxes in full). Once your construction is complete and you are closing or refinancing your loan, we will calculate the amount of property tax owed at that time, add it to the closing costs, and submit that portion of the payment on your behalf to the local jurisdiction that collects it. You will be responsible for the any remaining property taxes for the rest of the year.
What happens if my construction insurance expires and my home is still under construction?
Construction will halt until you have extended your policy. Your construction loan covers 12 months of construction insurance, and any additional coverage is your responsibility to pay out of pocket.