Construction Loan to Build/Remodel
Current State Availability
Connecticut only at this time.
Summary
Construction financing is available to individuals who intend to build a home to be used as their primary residence. It may also be used to finance the acquisition of a building lot and finance the construction of the borrower's home without multiple closings. A major advantage of this construction loan program over many others is that only one closing is required for both the construction and the end loan. There is no pre-payment penalty for this product, and mortgage insurance will be required for down payments of less than 20%.
Available Loan Products
One year, three year and five year adjustable rate mortgages with 30 year amortization for the permanent mortgage.
Construction Term
The maximum construction term is 10 months. During the construction term only, monthly payments of interest based on the amount of funds drawn by the borrower will be paid. The first rate adjustment will take place one, three or five years from the closing of the loan and not from the point when the house is complete. There is no escrow for property taxes during the construction term.
Loan Amount
Minimum loan amount: $100,000
Maximum loan amount: $1,000,000
Eligible Properties
Single family, owner-occupied residences on approved building lots.
Maximum Loan Amounts and Down Payment Requirements
The maximum loan-to-value will be based on the lesser of the appraised value or combined cost of the land plus improvements.
| $100,000 to $300,000 (loan amount) | 10% Down Payment Required |
| $350,000 to $500,000 | 20% Down Payment Required |
| $500,001 to $650,000 | 25% Down Payment Required |
| $650,001 to $1,000,000 | 30% Down Payment Required |
No secondary financing is permitted.
Documentation Requirements
*Standard borrower documentation for a full income verification loan plus:
*Cost estimates, building specifications and plans
*Builder's contract for the completion of the house
Note: The borrower must use a licensed contractor or architect to act as a general contractor/construction manager to supervise the construction.
*A certified class A-1 or class A-2 survey (usually due after foundation is poured)
Reserve Requirements
A reserve of 10% is required on all construction/permanent loans. The reserve is based on total construction costs and is intended to cover cost overruns. Equity in a lot does not count as a reserve, and all reserve assets should be readily accessible to the borrower. (In some cases there may be some flexibility in the reserve requirement).
Disbursement Schedules
75% of the land value can be advanced to the borrower at the closing. The remainder of loan disbursements will be scheduled in consultation with the builder and the appraiser. At least $10,000 will be held back from the final disbursement until all final documentation is received.
Planning to Build Your New Home
Planning and executing the construction of a new home can sometimes be overwhelming. We encourage all borrowers to submit an application for a pre-approval if they are planning to build a home in the next year so that we can assist you with planning the financing of your transaction.
