How is interest calculated and paid during construction?
Interest is charged on disbursed balances, not the whole loan amount. Borrowers are billed every month and the interest due must be paid by the 25th of each month. Since interest cannot be calculated until the end of the month you will not receive your bill until on or about the 10th of each month. The interest amount due will be automatically charged to the allocated interest reserve account in the borrower's loan budget, or paid directly from the borrower's own funds.
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How are disbursements made?
All disbursement requests have to be accompanied by a draw request form. The draw request form is executed by borrowers and contractors, specifying the amount of the draw. Builder profit and overhead is disbursed in accordance with the overall percentage of completion of the construction project. A disbursement requires an inspection, and a title endorsement (in most states) that searches for any liens recorded against the property. Upon receipt of the inspection and title update, funds are wired directly to the borrower or builders bank account as specified in the loan documents.
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What is a Draw?
A Draw is a request to have funds disbursed from your construction loan. Your disbursements are intended to cover specific expenses incurred during your home's construction, as itemized in the Cost Breakdown or Draw Schedule section of your Construction Loan Agreement.
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How long does it take to receive a disbursement?
A disbursement will be released after National City Mortgage has received an inspection performed by the appraiser or inspector and an update from the Title Company indicating the title to the property is free and clear of any Liens. Your Draw Administrator will review the inspection and Title Update and disburse your request up to the project completion percentage. This process usually takes no more than 48 hours.
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What is a One Time Close (OTC) Loan?
An OTC loan is two loans in one. Unlike buying an existing home, financing the building of a new home includes a construction phase, the period of time your new home is being built. Once construction is complete, a permanent mortgage is needed. Our OTC Loan includes both the construction phase and the permanent mortgage. This is why it's called a One Time Close Loan.
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What do you mean by a "no-payment" OTC?
As part of your OTC Loan budget, we can establish an account to pay the estimated interest costs during the construction of your home. This is called an interest reserve. This way you make no monthly payments during construction unless your interest reserve account is depleted before completion of your project.!
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How does the construction loan process work?
The OTC Loan process is similar to the process of a standard home purchase or refinances transaction. But, unlike a purchase transaction for an existing home, an OTC Loan involves determining the value of a home that is not yet constructed. In determining the future value of your new home, we request information on the planned improvements and construction costs.
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Does this mean I have to sign new loan documents?
Absolutely not! That's the beauty of National City's OTC Loan. Your loan documents were created specifically to cover both the construction and permanent phases of your loan. So you can be assured that you have permanent financing when your home is completed.
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How do I roll my loan over to the permanent phase?
When you make your final Draw Request, your Draw Administrator will forward your loan file for loan modification. Your loan officer will contact you to lock in your rate and a Modification Agreement will be sent to you to sign. You need to return these documents within 5 business days to protect your rate. It's that easy.
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Do I have to establish an escrow account with my construction loan?
No, not at National City Mortgage. We do not make you set up an escrow account on your loan until it converts to a permanent loan. You are responsible for any taxes or insurance during the construction period.
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Can my builder use his own draw/disbursement schedule?
In most cases yes he can. National City Mortgage has a variety of approval draw schedules that a builder can use. However, if your builder has his own schedule, he can submit it to National City for approval.
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Who does the draw/disbursement inspections?
The draw inspections are normally completed by the appraiser. In some cases we use a national inspection company when the appraiser is not available.
How many inspections are allowed and what is the cost?
The number of inspections is determined by your draw/disbursement schedule. The cost of the inspections will be paid when the loan is closed. The average cost of an inspection is $100.00.
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What is interest reserve?
The borrower will accrue interest as funds are disbursed on the loan and it will require a monthly payment to satisfy this accrual. Because the borrower may be currently paying a mortgage, some loans are set up with an interest reserve included as part of the loan. The interest payments for the loan are debited from the interest reserve line item. There are generally enough funds in an Interest Reserve Account to cover all of the Interest payments that may be due during the construction term. If there is no money left in the Interest Reserve Account the borrower will need to make the interest payments from their own funds.
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What is the maximum LTV?
Up to 95% depending upon the loan program and loan amount.
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