The Construction-to-Permanent Loan process is
similar to the process of a standard home purchase or a refinance
transaction. But, unlike a purchase transaction for an existing home, a
Construction-to-Permanent Loan involves determining the value of a home
that is not yet constructed.
Before you can obtain a Construction loan,
a Broker's
job is to find out your proposed "Acquisition Value" (AV), this is
not the *Market Value (MV) but the proposed cost to build your new home +
the current Value of the lot. This "value" is what the Construction
Underwriter (UW) will use to determine if you will need to bring any
monies to Settlement; moreover if you will need to pay any Mortgage
Insurance (MI) during each draw (or pmt. made to the builder from the
construction lender) if your proposed construction loan is above 80% of
the AV.
* The Market Value is the proposed Value of the
lot and the house AFTER the house is completed and you have received the
Occupancy Certificate (OC.) This value is used for the "permanent
financing" and it is determined by a different Appraiser ordered by the
permanent financing Lender.
How do we come up
with the AV?
·We take the "cost" to build the house and add it to the
"value" of the lot.
How do we come up with the "value" of the Lot?
·We use a "Plans & Spec" Appraisal (this is the Appraisal
used to determine the current "value" of the lot + the "cost" to build
home.)
If you've owned the lot for at least 12 months, we can use the current
Market Value plus any Sweat Equity.
If owned less than 12 months, we can only use the "Sweat Equity" {or the
money you have paid for the lot (down pmt.) plus any other $ you've put
into the lot, e.g., clearing trees, well, septic, etc…}
Example:
(I'm assuming current Value of the lot = $200k & cost to build home =
$200k):
1. Original
cost of lot = $185,000 (assumed purchased over 1 yr. ago)
2.Down pmt on lot = $54,605
3.Est. existing bal on lot = $130,000
4.Plans & Spec Appraisal value for lot =
$200,000
6.Est. Sweat Equity (so far) =
$7,800 (clear lot)
7. Est.
total Equity = $77,800 or $200k - $130k + $7,800k
8.Est. Cost to Build = $200,000
9.Est. Construction Loan = $338,000 -
(or $130k bal on lot + $200k cost to build + est. Closing Cost of *$8,000)
10.Est. Acquisition Value (AV) = $407,800
or $200k (house) + $200k (value of lot) + $7.8k (sweat equity)
11.$338,000 ÷ $407,800 = 83% Loan-To-Value (LTV)
- (At this point, if my math is correct, you would need to bring 3% of
$407,800k or $12,234 + Closing Cost to the Construction Settlement in order not
to pay MI and to gain an A Paper (80% LTV) financing on your future
Permanent loan. With this said, if your Lot Appraisal came in higher than the
assumed $200k, let's say by $22,500 or if put in more sweat equity
during the Construction phase you might not need to bring any monies to
the Settlement Table.
* At this point, these est. closing cost are just an est.
Here is an example
of a Good Faith Est. (GFE) for a Modular home (i.e. a
SFD built at a factory):
A Mortgage would be prepared for your property
located at _____ for an est. 1st mtg $330,000 + Closing Cost
· Max term of eight (8) months
· Interest-only pmts based upon a 30 yr. Amort.
· Fixed Rate of 7.50%
· No monthly MI
· Zero Points
· No Pre-pay penalty
1. Hazard Insurance Policy (HI) w/extended coverage in an
amount equal to the Appraised Value required
2. Building & Loan Agreement will be executed between our
Bank, you & Builder; your Builder is only agreeing to the terms of the
Draw Schedule
3. Survey less than six (6) months w/Perimeter & location
w/Flood cert (see est. fee below)
4. Foundation Survey will be required prior to 2nd Draw
(see est. fee below)
5. Release of Mechanics lien and Cert of Occupancy
(CO) upon completion of construction
6. Copy of Building Permit required prior to the release of
Foundation Draw
7. Funds will be released per Draw (agreed upon by you prior to
releasing) assumed 3 draws
8. Late Charge: If pmt is 10 days + late, Borrower will be charged
5.000% of your normal monthly pmt.
Total Est. fees
$3,128 – (Good news, most Construction Lenders will allow you add these
fees into your loan amount {i.e., you can borrow up to 90% of the Market
Value} therefore you would not need to bring any $ to Settlement.) With
this said, if you were to borrow $333,128 ($3,128 + $330,000), you would
have monthly pmts. est. at (assumed 3 draws):
The top section, line 800 – Items Payable In Connection With Loan, are
considered Non-Recurring costs and are reserved for the Lender, and/or
Mortgage Broker. The Appraisal Fee, a third party, will also be itemized
on line 803. These costs, with the exception of the Appraisal Fee, are
always included in the APR calculation. Loan
Origination Fees can be paid to either a Mortgage Broker or Lender. Loan
Discount points are always paid to the Lender.
You will see four acronyms in the top bar on line 800 at the far right
side. ‘PFC’ stands for Prepaid Finance
Charge. Any line item showing a check
mark in this column is included in the APR calculation. ‘S’ stands for
Seller Paid, as in a purchase transaction where a seller might cover
particular costs for a buyer. ‘F’ stands for FHA Allowable cost. ‘POC’
stands for Paid Outside of Closing and pertains mostly to third party
fees like Appraisal costs.
The second section down, 1100 – Title Charges, pertains to those costs
related to the issuance of title insurance and escrow closing services.
The third section, line 1200 – Government Recording & Transfer Charges
pertain to the costs of recording documents at governmental offices and
other local and state taxes due.
The fourth section, line 1300 – Additional Settlement Charges relate to
costs such as; Pest and general Home Inspections, Home Warranty Plans,
and sometimes Soil Inspections.
Line 900, Items Required By Lender To Be Paid In Advance are Recurring
Closing Costs paid as part of your loan closing.
Line 1000, Reserves Deposited With Lender relate to Impound Accounts. An
account established by the lender wherein they retain ample funds
collected in advance and on a monthly basis to make sure each respective
recurring cost is paid on your behalf by the lender. Not all loan
programs require Impound Accounts.
Compensation to Broker (Not Paid Out of Loan Proceeds), this area
relates mostly to funds paid from lender to broker exclusive of any
direct cost to you. Otherwise known as Rebate or Yield Spread Premium,
these amounts are not paid from your loan proceeds.
The bottom sections – Total Estimated Funds to Close and Total Estimated
Monthly Payment are fairly self-explanatory. The Estimated Funds section
calculates what funds are required to close or in the case of a cash-out
refinance or home equity loan how much cash you might be receiving. The
Total Monthly Payment section totals all monthly recurring housing
expenses.
BOX 800: ITEMS PAYABLE IN CONNECTION WITH LOAN:
#801: Loan Origination: $0 unless u want to buy-down Rate or
Margin #802: Loan Discount: $0 unless u want to buy-down Rate or Margin
#803: Appraisal: $350-$400
#804: Credit Report: Infile: $20 (If full report is needed $60)
#808: Mtg Broker Fee: $0 unless u want to buy-down Rate or
Margin #809: Tax Service: $65 - Lender for servicing tax
bill #810: Processing: $350 - Broker for processing your
file #811: Underwriting: $575 Lender for underwriting the file #812: Wire Transfer: $75 Lender pay-off/loan proceeds to
Title co. #813: Flood Cert: $14-$20 Lender to see if you are in a Flood
Zone
BOX 900: ITEMS REQUIRED BY LENDER TO BE PAID IN
ADVANCE: (Although estimates may be different from lender to lender,
at closing the items in this box will not be different for they are not
lender determined items.)
#901: Interest Per Diem: Unless we know your exact closing date,
we use 15 days of interest. At closing, you will owe interest on your
mortgage from the day you close until the end of the month. Mortgage
interest is paid in arrears, which means you live in the house, and then
you pay. Example, if you close the 20th of March, you would owe 11 days
of interest at closing (from the 20th through the 31st) and your first
mortgage payment would be due on May 1 (for the month of April). #902: MI Premium: Usually never paid with our loan products #903: HI: You are required to obtain Homeowners Insurance for
your home. You must pay for the first year prior to closing. You need to
contact a homeowners’ agent and obtain the insurance. #904: Interest Per Diem: If you are obtaining an Option ARM
because you are offered a Starting Rate which is different than the
Fully-indexed Rate (index + margin) our GFE program cannot properly
calculate your est. 15 days of Interest to be paid at Closing so we have
to manually take your fully-indexed rate X by 15 days and insert
the $ in this field #905:FI Premium: If you property is determined to be in a
flood plain, you will be required to purchase Flood Insurance.
BOX 1000: RESERVES DEPOSITED WITH LENDER: (Although estimates may be different from lender to lender,
at closing the items in this box will not be different for they are not
lender determined items.)
#1001:If escrowing for HI: est. 2-3 mos of Homeowners
Insurance #1002: MI Reserves: usually never collected on our mtg. products #1004:If escrowing for taxes: we usually included 4-6 mos
of taxes.
BOX 1100: TITLE
CHARGES: #1101: Escrow/Closing Fee: $350 Title co./Attorney
processing #1105: Document Preparation: $75
#1106: Notary Fee: $180 from your attorney or title company
#1107: Attorney’s fee: $50 to handle the closing #1108: Title Insurance: A general rule is $2.50 p/$1000-Refi,
$3.50 p/$1000-Purchase; pls check with your attorney. #1109: Courier: $50 charged by your Title co. #1110:Survey: $235 purchase, Refi. est. at $175
BOX 1200: GOVERNMENT RECORDING AND TRANSFER
CHARGES: #1201: Recording fees: $150, depending on the # of pages involved #1202: City/County/Tax Stamp: based on Purchase price, commonly
split between the buyer and the seller #1203: State Tax Stamps: usually based upon the Sales Price
#1204: User Defined Tax: Usually based upon the Sales Price for
your County
Here is an example
of a Construction Budget Worksheet
Line Item Description
Total Project Costs
Borrower Prepaid Costs
Changes to Budget
Remaining Construction Funds
A. PRE CONSTRUCTION COSTS:
101 Architect, Engineering & Soils Study
Fees
102 Design Review/Plan Check Fees
103 Permits - City/County
104 Utility Connection Fees
105 School/Park/Misc. Taxes
106 Project Bonds
TOTAL PRE-CONSTRUCTION COSTS
B. CONSTRUCTION COSTS:
General
Requirements
201 Temporary Utilities & Facilities
202 Special Inspections/Testing-Geo-tech,
Structural
