Construction loans time line

Building your dream home begins with the hunt for the lot that suits your needs. Though most people are very well aware of this fact they are at a loss as to what the next step is.Here we bring you a simple article that covers all the major milestones in the entire process. If you already own the lot or you are actually working on a major remodel of your existing house, simply skip the first part.

Construction loans are only given a final approval once the construction permit is issued. The following milestones are critical in getting the process right and closing the transaction smoothly. Assuming that you are looking for a lot or an older, smaller or run down property to renovate, the first thing to do is establish the basic parameters of what it is you are going to build. For this you start by a simple research project, studying what is available in the neighborhood that you would like to build. Your real estate agent is the one who can be of tremendous help in this. He/she can obtain sales and listing data for the area that will assist you in your research. With a full consideration of what it is that you can actually afford, establish a basic home size, type and price range, which should fall somewhere in the mid range of the average house in the area. There isn’t much point in being one of the smaller houses of the area and there most certainly is no point in being the best. You must always aim at the average size in order to maximize the return on your investment.

Armed with this information, you are now in a position to start looking for an architect or off the shelf hose plans, as well as contractors. Ask around and ask around all the time. Ask the architect, talk to people who have recently built a house, and interview as many people as you possibly can. The combination of this research is going to provide you with a wealth of information and turn you into an informed consumer.When discussing the construction project with all these professional ask for estimates of your permit fees and taxes or better still visit your local building and safety department and ask.You now have a pretty good idea of how much the whole project will cost and how much the finished home will be worth. It is time to start talking to construction lenders. This is a specialized field, interview a few construction lenders. Don’t be fooled into believing that every loan officer is experienced in this field. The details are much more involved and much more complex than purchase money or refinance loan.How do you know if he is experienced? Ask for a full construction loan budget and ask how the process works. At the first sign of hesitation, thank him/her and move on.

Milestone 1: Lot is chosen and you have entered into contract.Complete the construction loan application.At this stage you can complete the construction loan application despite the fact that you can not supply detailed information on the construction project or the contractor. The lender can open the file and start work on what’s known as the credit package, meaning everything to do with you, your credit and employment.

Milestone 2: Basic Architectural Plans Are Ready.
You have already chosen a contractor or two and have asked for bids. Now your construction lender can get a set of plans (working drawings are not needed at this stage.) and a basic line item cost breakdown from your contractor which will enable them to order a construction loan, future value appraisal report.

Milestone 3: Appraisal and contractor packages are ready.While the appraiser was doing his/her thing your detail working plans were getting ready, engineering was getting done and the contractor is working on detail cost breakdown, materials list and builder’s credit application.

Milestone 4: Construction Loan Package is submitted to underwriting.
Appraisal report and builder’s package are ready and submitted to the construction lender who has by now everything to submit the loan for a final approval to underwriting. Note that you are still not done with process as you have no construction permits yet.

Milestone 5: Plans are submitted to the City/County for Plan Check.
In most cases this stage happens concurrently with stage 4 or even a little sooner. Depending on your local authorities this part can take anywhere from a couple of weeks to 3 months or more. Also the plans may be returned for some adjustments if they are found to violate a local code or something that was missed by the architect or the engineer.

Milestone 6: Permits are issued and submitted to the construction lender.Guidelines for some construction loans will require the permits to be issued while others may accept the plan check receipt (proof that plan have been submitted and the fees paid) to issue a final loan approval and issue the closing documents.

And viola! You are done with the first and most important phase of your construction loan process. Now you are ready to start the real challenge of building your dream home.