AN INTRODUCTION TO YOUR CONSTRUCTION LOAN

This is very informative and should answer many questions for you from the loan process all the way thru the completion of construction on your new home.  

         OBTAINING A CONSTRUCTION LOAN when ob

FREQUENTLY ASKED QUESTIONS

When can I lock in my interest rate?

You are unable to lock in your 30 year fixed interest rate until your loan application is approved by an Underwriter.  At that time you will be called to lock in your interest rate.  The rate notated in the paperwork is merely an estimate until that time.  Once locked – the construction will need completed and the loan modified before the interest rate lock expiration date (which is determined and set when we lock in your rate).  Lock periods can be either 180 days, 240 days or 270 days with rates adjusting slightly for the longer periods.  If construction or modification exceeds your rate lock period, penalties may occur.  

Are the monthly taxes & insurance estimates in the loan paperwork correct? 

No. We have to "estimate" what these items will be though we do not know the real answer at this time.  Do not misinterpret these estimations with what you will have to pay in your monthly payment.   When your insurance agent and your County Treasurer give us the correct premiums, we will then change the estimates to the correct figures for your mortgage payment.

If I make changes to the price with my builder, can I finance these changes?

Absolutely – providing the loan has not closed and providing you can still qualify for the loan amount if the price has increased.  Any changes made after your loan is closed will need paid directly to the builder as the loan cannot be amended once the closing has occurred.

How long will it take to get my loan closed?

You should have your loan ready to close in less than 60 days from the date we receive the application paperwork and the requested personal documents.   There are unknowns that may come up such as delays in getting the purchase price finalized or appraisal issues which could affect this timetable.  Faster closing times can and have been met.   If speed is a concern for you - your complete cooperation will is greatly appreciated.

What type of homeowners insurance do I need?

Your homeowners’ policy will need to include “Builder’s Risk” coverage (unless your builder happens to provide this for you) and the premium must be paid a full year in advance.  It is also required that you obtain coverage for AT LEAST the amount to satisfy your mortgage amount in the event of a loss.  By the way - Huntington Insurance is aware & can accommodate this criteria if you choose them to provide your insurance for you.

Why is the FHA MIP (Mortgage Insurance Premium)  listed on the Good Faith Estimate?

In January 2010, the government mandated a standardized Good Faith document that all mortgage lenders must use.  The FHA financed insurance premium (which is added to your base loan amount to create the final loan amount) is shown as part of the loan closing costs thus creating a much larger cost amount on this form.  The total IS NOT solely what you are paying in costs for this loan as much of this total is the financed FHA premium.  This financed premium amount is listed on page 2, section 3 called “Mtg. Ins. /RD Guar. Fee”. 

Can I ever drop the MIP from my payment?  The monthly MIP may be dropped when your loan balance is paid down to 78% of the initial sales price or the initial appraised value, whichever was lower, providing you have the loan for at least 5 years.   In addition – if you sell the home or refinance the loan, a pro rated portion of the financed amount is also refunded back to you.  This is better explained on the attached forms titled “Important Notice to Homebuyers (page 2 of 2) and the“FHA Homeowners Fact Sheet”.

What do I have to pay during the construction? 

During the construction of your home, you will be billed each month for the interest due on the construction draws disbursed to your builder.  This will also include the advance to purchase or payoff your land (if applicable).  You will not pay the monthly FHA insurance, your homeowners insurance or your property taxes during construction - just the interest due on the draws.  It is important that you understand that you will have an interest payment due to us each month during construction which will increase each month as your home progresses thru construction.  

What happens once my construction project is completed?

Shortly after the completion of your construction, you will be contacted to set up the “modification” of your loan to convert from the construction phase to the permanent, 30 year payback phase.   At this time, you will need to pay to set up your escrow account for the taxes and insurance as nothing has been paid by you during the months under construction.  In addition, we will collect interest from the date of modification until the end of the month.  For example, if construction is completed on October 5^th, modification will not occur until November 1^st (all FHA modifications are on the 1^st day of the month after construction), you would prepay the interest for the remainder of October and your first mortgage payment would then be due December 1^st.

The following items are required to be completed to be able to modify your FHA construction loan into the permanent mortgage.

• Stairs from all outside doorways, service walkway (walkway from drive to front door)
• final grade  & seed and straw (winter weather delays may occur.  Check for details)

Do I need any inspections in order for Modification to occur? (FHA loans only)

That depends.  If your county issues a Building Permit & Certificate of Occupancy, you DO NOT NEED a site inspection UNLESS you are building a manufactured / doublewide home.  The respective fees have been included in your closing cost estimation.  If your county doesn’t issue the above, an FHA certified inspector will need to conduct an inspection of your home’s construction.  Also - If you have a well and/or a septic system – you will need a certified well/water test and/or a septic inspection upon completion of construction.   These tests need ordered and paid for by you and your loan cannot modify to the permanent mortgage until we receive them and your systems get a passing grade.  The approx. cost for each test is $150 and we can help you find a company to perform these tests in your area.  Your first inquiry should be your County Health Department as they may complete these tests at a nominal fee or even free or charge.

Can I apply any unused construction money back on my loan?

Yes but not until after modification has occurred.  FHA requires us to modify your loan at the exact same loan amount as when the loan initially closed.   If you want your payment reduced to reflect the lesser amount borrowed (called “recasting”), we can do this for you.  There is a modest fee for the recast as the Note will need amended.  In addition – you can also apply a lump sum principal payment any time you wish, as often as you wish and we can also do this recast for you if you want the payment reduced to reflect the new lowered loan amount.  Please note – only AFTER modification has taken place can we amend your loan amount and recast your mortgage payment.  It is uncommon for bank’s to offer their customers a “recast” feature and we are proud to be able to do so for you.

Submitted by:

Tony Ciccarelli

Mortgage Loan Consultant

The Huntington National Bank