Construction-to-Permanent Mortgage Loans combine two phases of the financing into one loan: the initial phase requires monthly interest only payments during construction and the second phase commences after the construction period and payments convert to full principal and interest.
Our mortgage loan experts will attempt to help you through all of the steps of the process to make sure you are informed regarding the process of financing the construction of your home.
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What are the specific items you need to begin an application for a Construction-Permanent Mortgage Loan?
Application Checklist items specific to the construction-to-perm loan
What to expect from the Construction Loan Process
12-month Construction Period
Our residential construction mortgage loans are made as one-time close “Construction-to- Permanent” loans. The rate and term are set at the time of application and carry through to the completion of the dwelling and then on to the permanent end loan financing. During the construction period, the borrower and builder can draw funds to cover building expenses. You only make interest payments on the total outstanding balance of the construction loan during the billing period each month.
Select your Builder/General Contractor
As the homeowner, you have the freedom to select your builder/general contractor, but they must provide proof of applicable state licensing, liability insurance and worker’s compensation insurance. OFBC maintains a list of approved builders and your Builder/GC must be approved by OFBC if not already on our approved list.
The Borrower must own the Building Lot
The purchase of the building lot or payoff of a lot loan can be achieved along with the construction-to-perm loan. The Old Fort Banking Company must be the first lien position on the property. If the Borrower owns the lot prior to applying for the loan, the lot equity is considered in the valuation and of part of the loan-to-value ratio.
If you’re not ready to build yet, but found the perfect lot, The Old Fort Banking Company also offers Lot Loans to get you started!
The Appraisal establishes the Value of the Property
The appraiser uses the house plans and specifications, lot value and the contract to build the home to determine the total value of the home when competed. The appraiser also conducts all future progress inspections as the builder request draws. OFBC will monitor draws to ensure proper alignment with the advance of loan funds versus percentage of completion. The bank and the borrower determine approval of loan advances.
Evidence of Homeowners Insurance
Prior to Closing, Old Fort Bank will require evidence of homeowners/builder’s risk insurance and a copy of the builder/general contractor’s errors and omissions policy.
A Foundation Plot Survey is Required
When the builder submits application for the first draw, a foundation survey will be ordered by the title company. The purpose of this survey is to make sure the placement of foundation complies with all applicable building setback and property line requirements.
Draw Process
The builder/general contractor or the borrower must submit the required documentation to the Old Fort Banking office for each construction draw request. Prior to advancing loan funds, a progress appraisal inspection and a title update is received to confirm the percentage of completion and to confirm the title is free of claims from unpaid suppliers or subcontractors.
Prior to the release of each draw, the residential construction loan department reviews all related documentation and the progress inspection to confirm and authorize the amount of the draw.
The number of draws will be agreed upon prior to closing; typically, there are 4 to 6 draws during the construction process.
Interest-Only Payments during Construction
During the construction period, interest on the mortgage is billed monthly based on the funds disbursed from the loan. Borrower-contributed funds are used first, and no interest is owed on these funds.
Converting to End-Loan or Permanent Financing
When the construction is complete and the construction period (usually 12 months) has passed, the loan will automatically convert to a repayment of principal, interest and escrow (if applicable).
