So you’re ready to build a home? Congratulations! This is an exciting step in your homeownership journey.
Whether you’ve built a new home in the past, or this is your first venture into the realm of home construction, it can be helpful to learn more about the construction loan process, and how you can be prepared.
At Waterstone Mortgage, we offer a Single Loan Close Construction Program — one loan covers the entire cost of the lot, construction process, and permanent mortgage. Let’s take a look at the 8-step process you’ll follow if you choose this construction loan option…
1: The Pre-Approval Process
Getting pre-approved is just as important for construction financing as it is for purchasing an existing home. A Waterstone Mortgage pre-approval lets you know how much you can afford, and helps builders know you’re backed by a trusted lender.
To get pre-approved, you’ll complete the following steps:
- Complete a mortgage application (in person or online), which includes information on debt, income, and assets.
- Your loan originator’s team will run and review your credit report.
- An automated underwriting system determines if you are eligible for specific loan requirements.
- Your loan originator completes a limited review of your income and assets.
After that, you will know the exact amount you’re eligible to finance. This will help you and your builder determine a plan.
2: Builder Acceptance
If your builder is not already on our accepted builder list, they will need to be accepted prior to loan application.
Please consult with your loan originator to obtain the builder application and list of required documentation needed for acceptance.
Once you’ve been pre-approved* and signed a contract to work with one of our accepted builders, it’s time to officially apply for a loan. Your loan originator can walk through the application with you, or they can send you a link to easily complete it online. At this time, we will obtain a more detailed credit report for you, as well.
- Signed construction contract
- Contract of sale for the land (if applicable)
- Plans and specifications (including elevation of the home)
- Construction cost breakdown
- Copy of your driver’s license
- Most recent 2 years of W-2 statements from your employer
- Last 30 days of pay stubs
- Last two months of bank statements (checking and savings)
- Last quarter of stock/bond/mutual fund/ 401(k) statements — all pages
- Divorce decree or court order defining alimony/child support payments (if applicable)
- College transcripts (if you graduated within the last 2 years)
4: Mortgage Approval
Once we’ve received your completed application and required documents, one of our underwriters will review your application. After you’ve been approved, we will issue a “commitment letter,” which states the loan amount you are approved for and any conditions that must be met before your loan closes.
Once all conditions have been met, you’re ready to close your loan!
Often, the construction process requires multiple closing meetings for the purchase of the land and the construction financing, and finally the permanent mortgage. Our Single Loan Close Construction Program is truly a one-time close — this one loan covers the entire process.
This is when you’ll sign the construction and mortgage paperwork. You’ll also pay your down payment and closing costs.
Now that your loan is closed, it's time to begin construction! The Single Loan Close Construction Program allows a 12-month construction period (If construction goes beyond 12 months, an extension may be available — ask your loan originator for details). As work is completed throughout the process, you or your builder will request disbursements (otherwise known as "draws").
During construction, you will make monthly, interest-only payments based on the amount of loan funds disbursed to that point. Your monthly payment will increase each month as your home is built and additional draws are paid to the builder and loan funds are drawn.
The draw process:
- A fully-executed Request for Advance will be provided.
- An inspection will be ordered. The inspector will conduct an inspection and complete an inspection report to ensure the work has been completed.
- A title “bring down” will be performed prior to each disbursement.
- A lien waiver for the draw amount will be provided by your builder.
- After we receive a satisfactory inspection report, draw request, lien waiver, and title bring down, the draw funds will be disbursed; we will provide payments as indicated on the draw request form (either via check or wire).
- A building permit must be received before construction begins and any money is disbursed.
- An inspection must be completed before each disbursement to the builder.
- You are responsible for any real estate taxes (course of construction/builder's risk) and insurance payments during construction — ask your loan originator for details.
- If your builder is providing the course of construction/builder's risk insurance during construction, you are responsible for making sure that policy stays in effect throughout the construction of your home.
- Any funds you contributed will be drawn first, before any loan funds are disbursed.
7: Getting Ready to Move In — The Final Draw Request
It’s finally here… time to prepare for your move! As construction finishes up and you prepare for the last disbursement, there are a few boxes that need to be checked before you can officially make the new house your home.
Finalizing the construction:
- A final inspection of your home will be ordered to confirm all work has been completed and the original appraised value of the home is still accurate.
- A final title search will be performed to ensure no liens have been filed against the property.
- You must sign a borrower letter of completion form and provide us with evidence of an acceptable homeowner’s insurance policy.
- Your builder will provide the Certificate of Occupancy.
- If required by your title company, a final as-built survey will be completed.
8: Your Mortgage
Now that your construction is finalized and you’re in your brand-new home, your permanent mortgage begins.
If construction was completed in 12 months, your construction loan will automatically roll into a permanent mortgage. If construction was completed quicker than 12 months, you will meet with the original closing agent and execute a Loan Modification Agreement to modify your loan and begin permanent financing. If construction exceeds 12 months, you can ask about an extension.
Home Sweet Home
While the construction loan process is quite detailed, it’s worth the end prize. The key to a streamlined, positive home loan experience is simply this: taking time to prepare, communicating consistently with your WMC loan originator, and providing needed documentation in a timely manner. Then, before you know it, you’ll be in your brand-new home, ready to make memories for many years to come!
To get started, find a loan originator in your area.
*A pre-approval is not a guaranty of final approval or a commitment to lend. Final approval is subject to a full credit underwrite by a qualified underwriter, satisfactory purchase agreement and appraisal, marketable title, and adequate insurance. Consumers are not required to obtain a loan simply because they choose to get pre-approved. In accordance with federal regulations, consumers are not required to provide verifying documents until they have submitted an application, received a Loan Estimate Disclosure, and stated their intent to proceed with the loan transaction.
In accordance with federal regulations, consumers are not required to provide verifying documents until they have submitted an application, received a Loan Estimate Disclosure, and stated their intent to proceed with the loan transaction.
Geographical restrictions apply — ask your loan originator for details. All loan requests are subject to credit approval as well as specific program requirements and guidelines. For some programs, income and property restrictions may apply. Information is subject to change without notice. The information provided in this guide is intended as general guidance and in no way constitutes legal advice or credit counseling.