Q:

Does my land need to be paid for "free and clear"?

A:

Yes. Construction Loan One will need to be able to put a first mortgage on your property at closing in order to secure its position as the lender of record. If your land is not paid for free and clear, Construction Loan One will payoff the balance of your land at closing in order to secure its first mortgage position.

Q:

How is my down payment calculated, and when do I pay for it?

A:

Your down payment is the difference between your total construction costs (including land, closing costs and reserves) and the amount of your loan. You will receive credit for any prepaid expenses or equity in the land that is documented. However, the balance of the funds to complete construction are due at the construction loan closing, just as it would be if you were purchasing an existing home. In essence, your land satisfies your down payment requirement.

Q:

What if a borrower owns a lot free and clear and wants to get cash back on the equity from the construction loan?

A:

Any requests for cash-back are subject to Construction Loan One approval and would be available only through the final disbursement of funds upon satisfactory completion of the home per the Construction Loan Agreement and only if the construction loan is not in default.

Q:

How is the interest calculated and paid on my construction loan during the construction process?

A:

Interest is charged only on the amount of funds that you have drawn on your construction loan. Prior to your loan closing, an interest reserve can be established if you qualify. This account will be used to pay the interest on your construction loan during construction. On the first working day of each month, the actual interest that is due will be debited from this account and paid to Construction Loan One. Construction Loan One will mail a copy of the interest statement, including the amount debited, to the borrower for their records. Once the funds in this account have been used, the borrower will receive a monthly interest statement for any additional interest that is due and owing.

Q:

If the borrower prefers to pay the interest monthly, when does he or she receive an interest statement, and is there a late charge that could be due?

A:

As stated above, payments are interest-only, and computed on the amount actually disbursed over the actual number of days outstanding. If an interest reserve is not established prior to closing, an interest statement is produced on the first working day of each month and mailed to the borrower. The borrower is responsible for remitting the interest payment that is due, and it must be received by the 15th of each month or is subject to a late charge.

Q:

Will Construction Loan One automatically add a contingency reserve to my cost breakdown?

A:

No. A contingency reserve will not automatically be added to a borrowers final construction cost breakdown prior to closing. However, a contingency reserve of 5% is recommended by Construction Loan One in order that the borrowers allow for possible unknown and unplanned costs that can and do occur in the process of building a house. If there is a shortage of funds to complete, the borrower is responsible for making up the shortfall.

Q:

Will I need to complete my new home 100% before I can obtain a mortgage to payoff my construction loan?

A:

Yes. Most long-term mortgage lenders will not payoff your construction loan until your home is 100% complete and you have obtained a Certificate of Occupancy (not a Temporary Certificate of Occupancy) from the local Building Department. Because each municipality and lender may have slightly different requirements, Construction Loan One always recommends that the borrower get this in writing prior to starting construction.

Q:

Is there ever a possibility for the borrower having to pay a pre-payment penalty with Construction Loan One?

A:

No. Borrowers will never pay a penalty to Construction Loan One for paying off their construction loan early. The sooner that you pay us off, the less interest you will pay on your construction loan.

Q:

If a borrower sells his or her current residence during the construction term and wishes to pay-down their construction loan (principal reduction), how will Construction Loan One treat this?

A:

The borrower may make a principal payment at any time. This payment will reduce the existing balance on the construction loan and will therefore reduce the amount of interest that will be billed by the lender.

Q:

Why do lenders require a Foundation Survey?

A:

Lenders will require a Foundation Survey when the foundation of the borrowers home is complete. The Foundation Survey is done by a licensed Surveyor and reassures the lender that your foundation (and therefore your home) is positioned on your property properly (and not on your neighbors). It supports that your house is being built where it is suppose to be built and that it is not infringing upon any easements, right of ways or setback requirements. Upon notice from you that your foundation (footings) are complete, Construction Loan One will order this for you and the cost will be deducted from your closing costs. From the time that this is ordered, it usually takes just two or three days.

Q:

Will I need a pre-approved long-term mortgage before I can get approved for a construction loan?

A:

Construction Loan One requires its borrowers to obtain a pre-approved long-term mortgage from the referring Bank or Mortgage Company. The advantages are that the borrower has already provided certain documentation to their long-term mortgage lender and the long-term mortgage lender is therefore familiar with their situation. When the borrowers home is nearly complete, the borrowers long-term mortgage lender merely has to update the borrowers file prior to scheduling a closing. This usually provides the borrower with an easy, quick and smooth transition to their long-term mortgage. Construction Loan One underwrites its own loans and will only approve a construction loan if the borrower meets the necessary criteria for both the construction loan and the long-term mortgage.

Q:

Does Construction Loan One provide long-term mortgages?

A:

No. Construction Loan One only provides construction loans. Our business comes directly from Banks and Mortgage Companies who do provide long-term mortgages. We allow our borrowers to work with the lender of their choice in order that they can choose from the many long-term mortgage options that are available today. Just like construction loans, each long-term mortgage can be customized to borrowers needs in order to save money.

Q:

Is it better to get a construction loan and end-mortgage all in one shot (one-time close)?

A:

There are advantages and disadvantages with this arrangement. The advantages are that there could (not always) be some initial savings in closing costs. The big disadvantage is that the borrower gets locked into a long-term interest rate that is usually higher than what the borrower would get if they merely refinanced their construction loan with an end-mortgage (two closings). The higher interest rate with a one-time close can add up to thousands of dollars over a few years.

Q:

How do we payoff our construction loan?

A:

When your new home is almost complete, you will contact your long-term lender and let them know that you are within thirty days of completion. Your long-term lender will update your file and then call Construction Loan One and request a payoff letter. Construction Loan One will provide a payoff letter to your long-term lender a few days before your scheduled closing date. After your closing, your new lender will simply mail or wire the payoff proceeds to Construction Loan One. Your construction loan mortgage will be discharged and you will now have a mortgage with your new lender.