Construction Loans

 

How long is the construction phase?

Loan amounts under the conforming loan limit of $766,550 are allowed up to 12 months to complete. Loans over this amount are allowed up to 18 months.

What if I need more time or the builder does not complete the home in time?

TVFCU encourages open dialogue between you and your builder to notify us if delays due to weather, suppliers, etc. exist and the home cannot be completed in the allowed time. Extension fees may be applied if approved.

What is a draw?

A construction loan is a line of credit and a draw is an advance against that line for costs associated with building your home. An inspection is done to confirm completion of work to the home and the draw is requested to pay for that work.

How many draws is the builder allowed to take?

Your loan allows for 12 draws over the construction phase. Your builder should submit a draw schedule that outlines if all 12 are not used, the funds allocated are applied as a principal reduction to your loan balance. As each item is complete a percentage of the work done for that item is disbursed to them according to how complete the item is.

The amounts for these inspections are included in your loan estimate. If all 12 are not used the funds allocated are applied as a principal reduction to your loan balance.

How long does it take to process a draw?

Draws are requested through a website/app by the builder and you, the homeowner, once submitted an inspection is ordered and performed. Once TVFCU has received the inspection and approved the work completed we will disburse the funds. This process takes approximately 72 hours.

How is my builder paid?

A specific construction checking account is created for your loan. Please note this account is not to be used like an ordinary checking account and is only for the payment of funds for your builder. You will not be issued checks or a debit card.

When a draw is approved by TVFCU, the funds are deposited to the construction checking account. You can request a certified check to deliver to your builder. You can also pre-authorize TVFCU to draft a certified check for the builder to pick up in one of our branches.

Is the construction phase rate and permanent loan rate the same?

TVFCU locks in your rate at the start of construction for both phases. You have the same rate as you make interest-only payments while the home is being built and once construction is complete with your monthly amortized payments.

How are loan payments calculated during the construction phase?

Payments are interest-only during construction and due on the 25th of each month. As draws are requested by your builder the amount disbursed increases and your subsequent payment will increase as well.

To estimate your monthly payment take the balance times the interest rate. Divide that number by 365. Then multiply the per diem interest by the number of days in the billing cycle.

For example: ($100,000 x 7.000% = $7,000 ÷ 365 = $19.18 x 30 = $575.34)

Can the payments be set up for auto payment during the construction phase?

Yes, TVFCU allows for auto payments. Simply complete the auto payment form available upon request. Note that the payments will increase over the course of construction as the line balance grows with draw requests.

My builder requires a deposit. When do we pay it?

TVFCU encourages the builder deposit to be included in their budget/cost to construct. We will disburse up to 5% of your builder’s total cost at closing.

What is the difference between a fixed-price contract and a cost-plus contract?

A fixed-price contract sets a lump sum cost for a project, regardless of whether expenses and materials go up or down. The builder must carefully calculate how much to charge to protect against a jump in material costs so that it doesn’t run over the loan funds or wipe out their profit.

A cost-plus contract is one in which the builder provides a detailed estimate for expected costs plus their fee and you and the builder agree to a set of recognized expense increases that may be incurred. Usually, increases are for fluctuations in items like lumber which may experience a spike in demand. To protect against estimating errors or underbidding a project, a cap may be requested on total chargeable expenses.

Do we have to have a building permit before closing?

No. However, the permit will be required before and disbursement of funds.

Can my builder start construction before the loan closes?

No. Under no circumstances is the builder allowed to start any work on the property until the loan is closed.

Can a builder get an advance on materials or when materials are delivered on site?

Yes with proper explanation.

TVFCU will allow for up to 50% of the disbursement of funds for the material line item to be ordered when construction is at a stage where the materials would be needed or if it is delivered on site and confirmed by an inspection.

Payment for the item will go directly to the supplier and should be evidenced by an invoice from your builder.

What is a contingency reserve?

A contingency reserve is a budgeted amount above and beyond your builder’s contract price to construct your home that is set aside for unforeseen cost overruns or material cost increases.

Your TVFCU loan officer will discuss your options for establishing the reserve account.

Can we make changes to the plans, materials or loan during the construction of the home?

TVFCU understands that changes may need to be made during the course of construction. Any changes made to the plans or materials needs to be brought to our attention immediately and should not be made without talking to us first.

Are we allowed to build our own home?

In some cases, TVFCU allows owner builds. For consideration, you must be a licensed general contractor and undergo a thorough review.

What are next steps after the loan closes?

Once the building permits are in place, your builder can start working on your home!

Within a few weeks after closing, you and your builder will receive a welcome call introducing you to our construction lending team and setting you up in OneSite, our construction management platform.

During this call, we will guide you through the steps for requesting and approving draws, explain how funds are released, and how to track the progress of your loan as the balance increases with each phase of the build.

What happens when construction is completed? How do we get the permanent loan?

One of the benefits of the one-time close construction to permanent loan is the transition to the permanent loan phase.

As you approach completion, TVFCU will prepare the necessary documents for converting the loan. You or your builder will need to file the 10 Day Notice of Completion in Tennessee. The documents will be sent to you for execution, and we will modify the loan to the preselected permanent financing program.

Please note that if you are planning to escrow for taxes and insurance, you may need to fully fund your escrow account to ensure sufficient funds are available to pay the bills when they come due to the respective county, city, or insurer.

How do I choose a builder?

TVFCU does not have a preferred builder list or make recommendations. However, here are things to take into consideration when making your choice:

• Like choosing a lender or realtor, you should be comfortable with your builder and if they are a good fit for your needs and expectations as you build a home?
• Does the builder listen to your needs and expectations?
• Will the builder allow or accept changes over the course of construction?
• Can the builder provide multiple references from other clients they have built homes for?
• How long have they been in the construction business and/or how long have they built by themselves?
• What is the builder’s reputation in the real estate community?
• Does the builder offer multiple home styles or ever managed a project like yours?
• Does the builder communicate well and will they offer guidance throughout the construction process?
• Will the builder provide all of their contracts and required documentation in advance?