THE CONSTRUCTION PROCESS A-Z
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Loan Qualification
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Lot Acquisition
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Engineering
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Construction
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Title & Closing
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Below you will find all the information necessary to get your new construction home loan approved.
PRE-QUALIFICATION
The beginning of your new construction loan process usually starts right here. To begin your quest for a lot and/or home, you will need a letter from your lender that specifies how much the lender is willing to lend to you, up to a certain amount and based on certain assumptions. These assumptions are, in turn, based on the information you provide to the lender as to your income and assets. The lender will also pull your credit report as this provides critical information to aid the lender in making a prequal decision.
Once your credit is pulled, and other information collected, the lender will issue the "prequalification" or "preapproval" letter. Athough the prequal is not a guaranteed loan offer, most builders and Realtors accept the prequalification letter as a basis for you to move forward in your search for a lot and house.
With a prequal letter in hand, you may now confidently shop for a lot and/or home within your budget (See Lot Acquisition and Construction Sections). When you ultimately find the right lot or house, you will then start the process of documentation and final approval, as explained below.
Once your credit is pulled, and other information collected, the lender will issue the "prequalification" or "preapproval" letter. Athough the prequal is not a guaranteed loan offer, most builders and Realtors accept the prequalification letter as a basis for you to move forward in your search for a lot and house.
With a prequal letter in hand, you may now confidently shop for a lot and/or home within your budget (See Lot Acquisition and Construction Sections). When you ultimately find the right lot or house, you will then start the process of documentation and final approval, as explained below.
DOCUMENTS NEEDED
Once you go under contract for the lot and/or house, the lender will need to formally approve you for your loan. In order to do that, the lender will have to research, in detail, your income and assets. The lender will also need to appraise your to-be-built home and, particular to new construction loans, the lender will need to review many engineering related items (See Engineering Section). Finally, per federal guidelines, the lender must track all source of funds you will use for the closing. Documentation is often where you may feel the most frustrated and that you are being asked for documents or explanations that seem silly. Please remember that your lender must adhere to strict State and Federal underwriting standards and it is for this reason the documentation part of your loan is sometimes so burdensome.
In order to make this process as painless as possible, please make sure you use the resources below:
- Income document checklist
- Engineering checklist
- Asset document checklist
- Document submission portal
- Bank Form?
- Any other forms?
After the lender receives, reviews and approves all of your supporting documentation, the lender will issue to you a final loan approval.
In order to make this process as painless as possible, please make sure you use the resources below:
- Income document checklist
- Engineering checklist
- Asset document checklist
- Document submission portal
- Bank Form?
- Any other forms?
After the lender receives, reviews and approves all of your supporting documentation, the lender will issue to you a final loan approval.
FINAL APPROVAL
Explain final approval process here
Obviously, you can't build a home until you find a lot. But finding an appropriate lot is not simple, and can be an area of great danger if you're not careful. The best way to protect yourself against this danger is to find a real estate agent that specializes in lots, land and construction. Here you will find the best way to choose an agent and work your way through the acquisition process.
THE AGENT
The truth is that most real estate agents focus on, or specialize in, different areas of real estate. Most agents are regularly involved with, and receive training on, residential resales. But far fewer agents obtain training or specialize in land and construction. Why? Who knows. Likely because of the complexity of land and home building. The important thing is that you find an agent that does. A land specialist will be much better equipped to guide you through the process and pitfalls so common in lot acquisition.
Here are some examples of the types of problems you could face and how a land specialist can make all the difference:
Pitfalls
How to find an agent / questions to ask
Resources?
Here are some examples of the types of problems you could face and how a land specialist can make all the difference:
Pitfalls
How to find an agent / questions to ask
Resources?
THE CONTRACT
Once you have identified your new lot with your agent, it is time to enter into a legally binding contract to purchase the property. Although several aspects of a lot contract are similar to a typical residential home contract, many are not. Here are a few key diffences you should keep in mind as you enter into a contract:
- Feasibility - Although both you and the seller may believe the lot is buildable, that does not make it so. Several tests must be done and approvals obtained before an actual building permit may be issued (See Enginnering Section). Because of this, it is important for you and your agent to negotiate an appropriate study, or feasibility, period to allow you and your agent enough time to truly determine if the lot is buildable (or at least buildable for the type of home you desire).
- Two Contracts - It will be important for you to remember that, in a new construction scenario, there will be not one, but two different contracts. The first contract is the land contract. This is a contract between you and the landowner. The second contract is the building contract, which will be between you and the builder, and not the seller (See Construction Section). Many people are confused by this and often think of them as one in the same. The settlement of the land contract may or may not be contingent on entering into a building contract, and it's important that you understand how one may or may not be contingent on the other. This is another reason why you must have an experienced agent working with you.
- Due Diligence Items - Once you have negotiated a feasibility period, there are certain due diligence items that you must accomplish that are different than a standard resale contract. These items include _______________. Some of these items must be done by an engineer, but other items can be done by ________. and are dicussed in more detail in the Engineering Section.
THE LENDER
Much like you need a real estate agent that understands land, you MUST have a lender and loan officer that specializes in new construction. Due to the complexity of these types of loans, having an experienced lender will make all the difference in you getting to the table on time and on budget.
Your lender will need a copy of both your land contract and your builder contract before they can issue you a final loan approval. Generally, your land contract is the first contract you will sign. Your builder contract will likely take longer to negotiate. Also, there will be addendums to your builder contract for options or upgrades along the way. Remember to always provide those items to your lender.
Your lender will need a copy of both your land contract and your builder contract before they can issue you a final loan approval. Generally, your land contract is the first contract you will sign. Your builder contract will likely take longer to negotiate. Also, there will be addendums to your builder contract for options or upgrades along the way. Remember to always provide those items to your lender.
FROM RAW LAND TO A FINISHED LOT
PRIOR TO CONSTRUCTION
CONSTRUCTION DRAWS
FINAL APPROVALS / USE & OCCUPANCY
As the title company for your upcoming loan, True Title will perform 3 very important tasks related to your construction transaction: 1) Perform the settlement/closing in strict conformity with lender instructions and the contract(s); 2) collect and disburse all monies necessary to complete the transaction; and 3) issue lender's and/or owner's title insurance policies for you and the lender. See more detail below on each.