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Frequently Asked Questions
What is a Construction-to-Permanent Loan?
Construction-to-Permanent 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 Construction-to-Permanent Loan includes both the construction phase and the permanent mortgage. This is why it's called a Construction-to-Permanent Loan.
How does a one-time-close save time and money?
With just one loan application, one loan qualification and one loan closing, you get all the financing you need in a single construction loan to build your home. The construction loan becomes a permanent mortgage when construction is complete. Best of all, you only pay one set of closing costs. And there can be no payments during the construction phase with our interest reserve account.
How is interest calculated and paid during construction?
Interest is charged on the outstanding balance. 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 is paid from the borrowers funds or will be paid from the borrowers interest reserve account.
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/builder, 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. NCM allows for the payment directly to the builder if the borrower pre-authorizes the payments.
What is a Draw?
A Draw is a request to have funds disbursed from your construction loan. Your disbursements cover pre- determined expenses incurred during your home's construction, as itemized in the Cost Breakdown and/or Draw Schedule. To insure that funds are not disbursed for work that is not in place all inspections are completed by a third party inspector/appraiser.
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 is paid when the loan closed. The average cost of an inspection is $100.00.
How long does it take to receive a disbursement or draw?
A disbursement or draw is released after National City has received an inspection performed by our appraiser and an update from the Title Company indicating the title to the property is free and clear of any Liens (not required in some states). Your Draw Processor will review the inspection and Title and disburse funds based on the percentage of work completed. This payment process takes less than 48 hours once inspections and title work have been completed. In many cases NCM wires funds the same day inspections are received.
What is an Interest Reserve Account?
An Interest Reserve is additional funds held in the loan (if supported by the appraisal) that will be exclusively used to pay the interest during construction. The total interest to be set aside is estimated by the lender, and the interest reserve account is funded at closing. Any money remaining in the account upon completion of the home will be used to pay down the principal at modification. If the monies in the interest reserve account are depleted prior to completion of the home the customer will be required to begin making monthly interest payments.
What is a Contingency Reserve Account?
A Contingency Reserve Account is set up to cover unforeseen costs and the costs of upgrades incurred during construction that may not be included in the builder contract while many other lenders require Contingency Reserve Accounts; National City Mortgage does not. Any money remaining in the account upon completion of the home will be used to pay down the principal at modification.
If I did not set up a contingency reserve how do I deal with cost overruns?
At National City we offer the maximum flexibility when dealing with cost overruns and upgrades. Two additional options remain: Budget in advance and pay with cash or National City Mortgage may be able to increase your loan amount at modification. Contact your construction lending professional to discuss this exciting option.
How does the construction loan process work?
The Construction-to-Permanent Loan process is similar to the process of a standard home purchase or refinances 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. In determining the future value of your new home, we request plans, specifications, and a cost breakdown from the builder so that a third party appraiser can determine future value.
Does this mean I have to sign new loan documents?
NO! That's the beauty of National City's Construction-to-Permanent 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. Your construction loan is converted to a permanent loan with a few signatures in the comfort of your home. Your loan representative will contact you to "hard lock" your rate at completion of construction prior to signing the modification papers.
Can my builder use his own draw/disbursement schedule?
In most cases yes, National City has a variety of draw schedules that a builder can use. However, if your builder prefers his own schedule, NCM will glady review for approval.
Does National City Mortgage provide financing on homes where construction has already started?
Yes, However, In order for us to consider financing a home under construction, we need evidence of payment on work performed, appraiser indicates the stage that construction is in and if there are any adverse conditions due to construction in progress, and title company must be able to provide NCM with a 1st lien position.
What is the maximum LTV?
95% of the Finished Appraised Value of your new home.
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