The Construction Process

The Home-Buying And Building Process

How To Start

Finding Your Home

What To Expect

Initial Steps

Construction Loan Glossary Of Construction Terms

Once You’ve Been Approved

Locking In Your Interest Rate

Completing The Process

Your Initial Loan Settlement

Settlement For One-Time And Two-Time Construction-To-Permanent Loans

Payments On Your Construction Loan

Construction “Draws”

Generic Timetable For Construction

Converting Your Construction Loan To A Permanent Mortgage

Servicing Of Your Permanent Mortgage

THE HOME-BUYING AND BUILDING PROCESS
Building your home is an exciting adventure, but it can be frustrating if you don’t know what to expect.  Land/Home Financial ensures you know what to expect when you apply for a mortgage and are looking at the construction process.  That’s because we keep you informed throughout the process.  Land/Home Financial is here to help you get the most home you can afford as simply, easily and conveniently as possible.  Unlike buying an existing home, financing the construction of your new home occurs in several steps. First, the construction of your new home is financed in stages with a construction loan. Following that you’ll convert your construction loan to a permanent mortgage.

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HOW TO START
To begin building your home, the first thing you’ll need to do is determine what kind of financing you’ll need.  A call to a Land/Home Financial manufactured and modular home loan officer is the best way to find out what kind of financing suits your situation, including the type of construction loan you need.  After talking with a loan officer over the phone, we’ll start the pre-approval or loan application process immediately.

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FINDING YOUR HOME
With your pre-approved commitment from Land/Home Financial, you can shop for a home that meets your needs with confidence because you’ll know how much home you can afford.  We can provide a list of retailers or builders in your area if you desire.  And you’ll have the opportunity to take advantage of construction loan terms you are comfortable with.  Once you’ve chosen the home that’s right for you, we’ll complete a loan application for you to sign and request the documentation listed below.

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WHAT TO EXPECT
Once Land/Home Financial has received your signed loan application with the required documents, we’ll send it to our processing department and then for underwriting approval. After all documents have been reviewed and program guidelines met, the underwriter issues an approval.  Now let’s look at the Initial Steps.

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INITIAL STEPS
The Application Process
Items Needed At Application

The Application Process

  • A telephone interview takes place between you and your Land/Home Financial Loan Officer.
  • All items checked under the Items Needed at Application (below) should be available to enable the interview to be completed quickly.
  • Thirty minutes to one hour should be allowed to complete the loan application.
  • Once the application is completed, the Loan Officer will discuss policies and procedures concerning the construction-to-permanent loan process.
  • Once the interview is complete with all required information, your application package with all necessary disclosure documents is sent to you via U.S. Mail for signature(s).
  • After review by you, all documents are signed and returned along with copies of the information stated in "Items Needed at Application", including a check to pay for an appraisal or CC form in disclosure package.
  • After the documents have been received and reviewed, the Loan Officer will send the package to your Loan Processor to be completed.  The Loan Processor may have to call you for additional information.
  • Once the loan is structured and a preliminary approval is decided by the Loan Officer, an appraisal is ordered. The appraisal is prepared as if the project is complete, and is based on comparable sales in the immediate vicinity.
  • Upon receipt of the appraisal, it is reviewed by the Loan Officer, the Loan Processor assembles and prepares the documents for Underwriting review and the entire package is sent to Underwriting for approval.
  • After all documents are reviewed and all guidelines are met, the underwriter issues a final approval.  It is important to note here that this approval is for both the construction phase and the permanent loan phase regardless whether you choose a one-time or two-time close.  The only caution is that on the two-time close you must ensure that your basic credit standing and loan parameters (i.e. income, debt ratios, LTV, etc.) do not significantly change during the period of construction.  Your Loan Officer will discuss this with you.
  • Next the loan package is sent back to the Loan Processor for a customized disbursement schedule.
  • Once the disbursement schedule is completed, the loan closing process is initiated.

Items Needed at Application
The following is a list of items needed at application for rapid and proper processing of the loan. By having these items at application, we save you time by eliminating the need for written employment verification from your employer, verification of credit obligations, and verification of cash on deposit and other bank accounts. This speeds your approval because we are not sending and receiving verifications.

  • Most recent 12 months’ mortgage history (canceled checks or last 12 months’ rental history).
  • 1 month of most current pay stubs from all current employers.
  • 2 years of most recent completed and signed federal tax returns and W-2’s for all employers.
  • Name, addresses, dates of employment and salary for last 2 years.
  • Most recent 2 months’ bank statements (all accounts).
  • Social security numbers (if receiving pension, please provide award letter and most recent payment receipt).
  • Fully executed gift letter (if applicable) including copy of certified check or treasurer’s check from a blood relative and a copy of the deposit slip.
  • Sales agreement on the land and legal description of the property (if applicable) or a copy of your deed.
  • Complete set of plans, specifications, and a home purchase contract, plus a record of deposits given to manufactured/modular home retailer/builder.
  • Open loans - addresses, account numbers, balances and monthly payments or most recent statement, if available.
  • If self-employed, complete set of most recent tax returns for last 2 years (1099’s, K-1, etc.), plus year-to-date profit and loss statement.

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CONSTRUCTION LOAN GLOSSARY OF CONSTRUCTION TERMS

Closing Costs - Fees that are paid by the borrower at closing.  Normally, 4-6% of the loan amount.

Construction Loan - Temporary, short term financing to pay for construction costs. Interest-only payments are made and only on money that has been disbursed.

Disbursement Schedule - Also known as the draw schedule.  A timeline as to when construction costs are paid out for completed work during the construction loan period.

Escrow Accounts - Accounts established to pay for real estate taxes and homeowners insurance as they come due.

Modification - Term used to describe the process of converting the construction loan into the permanent mortgage when you have a one-time close loan.  For the two-time close loan there is a separate closing to convert the construction loan to a permanent loan.

Permanent Mortgage - Also known as the end loan.  Long term financing used to repay money that is borrowed as a part of the construction loan.  Principal, interest, tax and insurance escrow amounts and mortgage insurance premiums, if required, will be included in the permanent mortgage loan payment.

For more information about construction loans, and what financing is best for you, call your Land/Home Financial Loan Officer at 1-888-796-5263.

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ONCE YOU’VE BEEN APPROVED
After your loan has been approved, we’ll work with your retailer/builder to arrange a customized disbursement (“draw”) schedule that pays for each of the significant steps of construction.  Disbursements are paid upon a satisfactory inspection of the work that has been completed. Inspections are generally ordered within 24 hours after receiving written or verbal requests from your Retailer/Builder.

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LOCKING IN YOUR INTEREST RATE
Locking your interest rate at the appropriate time when the construction project is nearing completion can be confusing.  Talking with your Loan Officer will help you through the process. Points to remember include:

  • The construction interest rate is locked at application.
  • The permanent mortgage rate is “floated” until the construction process nears completion.
  • Your permanent rate is normally locked 15 days prior to when the permanent loan will take effect.  Your Loan Officer can discuss options and your needs, working to satisfy your desires.
  • It is crucial to understand both the benefits and process of locking your interest rate.  If you have questions at any time, please call us at (888)796-5263, or e-mail sgooder@lhfinancial.com.

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COMPLETING THE PROCESS
After all documents for the construction and permanent mortgage are complete a closing (the first of two for the two-time close loan) will be scheduled with you for signatures.  Depending on how your loan is structured and your down payment and/or land equity, some closing costs are paid at this time, any liens against the land must be paid off, and the construction phase of your home starts. Once a final home inspection is completed and a certificate of occupancy is issued, your loan is ready to transition into your permanent mortgage by modification (for one-time close loan) or another closing (for the two-close loan).

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YOUR INITIAL LOAN SETTLEMENT
Once all documentation and signatures have been obtained at your initial loan settlement and any conditions have been met, construction on your home can begin.  Usually, funds are disbursed at settlement which may include payoff of the lot (if applicable) and certain closing costs.  You are required to make interest-only payments to Land/Home Financial on the funds as they are disbursed during construction.  

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SETTLEMENT FOR ONE-TIME AND TWO-TIME CONSTRUCTION-TO-PERMANENT LOANS
At Land/Home Financial Mortgage, construction-to-permanent loans have two options that allow our borrowers to meet their individual financial needs. 

  • For the one-time close option, only one settlement documents and one set of closing costs apply.  At settlement, you will be signing all of the loan documents for both the construction and permanent mortgage loans.  Your loan will modify from a construction loan to a permanent mortgage when your home is completed.  You will have a separate set of papers to sign at modification; reaffirming the terms of your original settlement and setting your permanent loan in place to begin making regular payments of principal and interest.  You will be required to sign an Acknowledgment of Modification Fees notifying you of what your estimated fees will be.
  • For the two-time close option, separate sets of settlement documents and closing costs will apply to both the construction loan closing and the permanent (take-out) loan closing.  The second closing sets your permanent loan in place to begin making regular payments of principal and interest.  

After completion of the draw schedule by the Loan Processor, the file is sent to a Land/Home Financial Mortgage Closing Agent who prepares the documents for settlement at the closing to start the construction phase.  The Closing Agent schedules settlement with an Attorney or Title Company. At settlement, closing costs are paid, all documents are signed, any balance left on the land purchase is paid off, and the construction phase of your loan is initiated.  A portion of the closing costs may not be paid until modification to or closing of the permanent mortgage loan.

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PAYMENTS ON YOUR CONSTRUCTION LOAN
Funds start accruing interest on the day they are disbursed. If settlement was on the 20th of the month, a statement will be prepared for your first payment due on the 1st of the following month.  Your statement will include interest on money disbursed, and any fees, if necessary.  

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CONSTRUCTION “DRAWS”
During the construction phase of your new home, your retailer/builder will receive payments following inspection of each pre-established phase of construction.  The payments made to your retailer/builder are called “draws.”  To schedule the inspections, your retailer/builder must call Land/Home Financial and notify your Construction Coordinator, who handles construction administration.  The Construction Coordinator orders an inspection and lien search (if required) to verify that no other creditors have a claim on the property.  It usually takes about a week from the time the inspection is ordered until Land/Home Financial receives the inspection report.  Following verification from the inspector, and a clear lien search, a check will be sent to your retailer/builder.  This process continues for each phase of work until your home is completed.

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GENERIC TIMETABLE FOR CONSTRUCTION
Below is a rough estimate of a timetable of what to expect for the construction phase of your manufactured or modular home.  Local and State conditions may vary significantly from these estimates.

Site Plan:
After all necessary permits have been obtained (the time for this varies widely by location); you can now turn to your site plan to mark where your house will be built on your land.  This is done with the help of the site plan and your retailer/contractor.  The time frame for this depends on the retailer.

Excavation and Groundbreaking:
Clearing of the land ensures that enough space is available for tractors and forklifts to operate during construction.  At this time your driveway may also be cleared to allow access for deliveries.  The excavator will also dig out for the foundation and basement (if they are applicable).  This is typically done after the land has been cleared and within the same time frame as the excavation.  The time frame is usually a week or less.

Utilities:
The sub-contractors will need water and temporary electric service installed.  If you've chosen a well or septic system, a sub-contractor will normally complete the work.  Time frame is 1-2 days. 

Footers:
Your concrete sub-contractor will pour your footers (as required) according to your plans and specs. After this stage, an inspector may be required to inspect and check the footers to ensure they meet with township or county building codes.  Time frame is 1-2 days.

Foundation:
Your home can be built on various types of foundations (depending on County and State and lender guidelines): brick, block, concrete, pre-cast or all-weather wood.  Your masonry sub-contractor will construct your foundation as specified in your plans and specifications.  Your foundation may include a full basement or concrete slab (if using a concrete slab, all plumbing rough-ins must be complete before pouring your slabs).  Time frame is 1-2 weeks, depending on location, foundation type and sub-contractor.

Delivery and Set of Manufactured or Modular Unit(s):
Your general contractor or manufacturer will deliver and set the manufactured (using a totter and jacks) or modular unit(s) (using a crane) on your new foundation.  Time frame is 1-3 days (depending on the number of units being set).

Driveway and Walkways:
This stage, if applicable, may be held off until all construction equipment has been removed to prevent any damage.  Time frame is up to 4 days.

Button Up:
Interior and Exterior finish and mechanical installations will be completed at this point.  Time frame is 1-2 months (depending on size and design of home).

Landscaping:
Depending on the time of year your home is constructed, you may need to wait until the proper time of year to complete this stage.  If you must wait, the appropriate amount of financing can be held in escrow until this can be completed.  This will not however, delay modification or transition to the permanent mortgage terms.  Time frame is up to 4 days, depending on the size of your lot.

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CONVERTING YOUR CONSTRUCTION LOAN TO A PERMANENT MORTGAGE
Upon completion of your home, a final inspection will be needed to certify occupancy.  Once ordered the Loan Processor and/or the Loan Officer will contact you to set up your loan modification (if a one-close loan) or second closing (if a two-close loan). Typically, the Construction Coordinator coordinates the modification or second closing within a few days after receiving the certificate of occupancy and final inspection from the appraiser.  Any conditions due at modification or second closing, such as a final site survey or HUD1 from your previous home’s sale, must be received by the Construction Coordinator.  When the modification or second closing date is set, the Construction Coordinator determines any costs or fees due at modification or second close.  Typically, these include:

  • Construction interest accrued through to the modification or second close date.
  • Interim interest for the remainder of the month.
  • Set-up of the initial escrow accounts for taxes and insurance (if escrowing, which is normal).
  • Inspection fees

In the case of a modification for the one-close loan, documents will be sent via overnight delivery to your attention.  Upon receipt you will have 48 hours to return the package to Land/Home Financial.  In the case of a second close, you will go to an attorney’s or closing agent’s office to sign the necessary legal documents.  Following the final closing or modification and payment of all fees, your construction loan converts to a permanent mortgage.  Your interest-only payments will no longer be required; instead, you will start making your regular monthly mortgage payments.

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SERVICING OF YOUR PERMANENT MORTGAGE
The Servicing Department at Land/Home Financial Mortgage may service your loan after it has modified or transitioned to a permanent mortgage until such time as the loan is sold to another financial institution.  In this case, you will be notified in writing as to where to remit your payments.