Frequently Asked Questions
TOP
1. What kinds of loans do you offer?
We offer short-term construction loans for conventional framed homes,
log and timber frame homes, kit homes, modular¹
homes and dome homes. Homes may be built as a primary residence,
second home or rental property of up 1-4 units. The borrower can
act as their own general contractor or they can hire one. Upon completion
you will refinance the loan because we do not provide permanent
mortgages.
TOP
2. How will I know when to start the refinance process?
We will automatically notify you when the borrower reaches the drywall
stage of construction so you can contact the borrower regarding
their permanent mortgage.
TOP
3. Do I need to be licensed to originate a construction
loan?
If your profession is to originate mortgages, the answer is yes.
If your profession is different, you can be paid a referral fee
without being licensed.
TOP
4. When do I get paid my origination fee?
The origination fee is paid to you at the construction loan closing.
The amount of the origination fee is determined by the originator.
TOP
5. How many points can I charge to originate your loan?
It is our understanding that there is no limit. Federal law preempts
limits imposed by states as long as the loan is secured by a first
lien on residential property. The average amount of points charged
by brokers has been observed at two (2), but you may price it as
you wish.
TOP
6. What are your interest rates?
Interest rates are adjustable and are tied to the prime rate. Our
lowest rate is prime plus 1 and our highest rate is prime plus 5.
The interest rate is determined by the borrower's credit score and
the level of equity they have into the project prior to our funding.
TOP
7. Is this an interest only loan?
Yes. Every month the borrower will be billed and will pay interest
only on the amount of the loan drawn to date. Interest is not paid
out of the loan, only directly from the borrower.
TOP
8. How long is the loan?
The maximum term of the loan is 18 months and there is no prepayment
fee.
TOP
9. How much of a down payment does the borrower have to
have to qualify?
In most cases, the minimum equity into the project needed
prior to funding is equal to 35% of the total cost of the project
(land cost plus construction cost.) Any money the borrower has already
paid toward the land and/or construction can and will be applied
to the down payment (equity) requirement.
TOP
10. Can the cost of the land be paid from the loan?
In most cases, as long as the amount of equity the borrower
has in the project is equal to 35% of the total cost (land cost
plus construction cost), then the loan can pay off the balance of
the land.
TOP
11. What are your Loan to Value (LTV) and Loan to Cost
(LTC) percentage?
The highest is currently 65%.
TOP
12. What is the lowest and highest loan amount?
The lowest is $50,000.00 and the highest is $415,000.00.
TOP
13. Do I need to pre-qualify the borrower for a permanent
loan prior to the construction loan?
Yes.
TOP
14. Does my customer have to use their money first before
they can request a draw?
No. The borrower will call, email, mail, or fax to submit
their draw requests. We will then mail to the borrower a single
party check, made payable to them. They will deposit the check into
their personal checking account to pay their suppliers and contractors.
TOP
15. What if the borrower experiences higher costs?
Initially, an allowance for cost over-runs is built into the loan.
However, if an increase is still needed then we can increase the
loan as long as the increase, when added to the loan amount, does
not exceed the borrower’s maximum LTV/LTC.
TOP
16. Are inspections required for every draw?
No. During the loan, the construction will be inspected at the completion
of every three line items on the budget or as each 10% increment
of the loan payout is reached, whichever comes first. The cost of
each inspection averages $105.00 and is paid out of the loan.
TOP
17. Can the loan finish construction that has already been
started?
Yes.
TOP
18. Can the loan start construction and the borrower finishes
it later?
No. The construction loan must complete construction, therefore
the borrower’s money (if any) must be used first.
TOP
19. Can the borrower hire a contractor?
The borrower can hire a contractor or they can act as their own
contractor. If they act as their own contractor, we do not require
them to have a site or project supervisor.
¹
Some restrictions may apply. |
