Building a Home: Financing from Start to Finish
Choosing cabinets and fixtures is much more enjoyable than studying financial information and sifting through legal documents. With a construction-to-permanent loan from BB&T Home Mortgage, you can focus more time on your dream home and less time arranging financing.
The process is easier than you might think. Here's how it works:
Review Your Eligibility
One of the qualifications of a construction-to-permanent loan is that your new home must be an owner-occupied primary residence or a second residence. The property type must be a one-unit, single-family detached home. BB&T Home Mortgage also requires the use of a licensed builder in the construction of your home.
Understand Your Loan Options
When you are ready to begin the application process, contact a BB&T mortgage professional. Your professional will walk you through the interest rates, loan options and loan terms available. Loan products include fixed rate and adjustable rate loans. Your professional will help you determine which is best suited to your situation.
Complete an Application
The application process is not much different than applying for a standard home loan. In addition to the usual financial information, your professional will also request:
- A copy of the construction agreement with your builder, which must specify the cost of your home including options, upgrades and lot value
- If applicable, a land contract for the lot on which your house will be built
- A copy of the floor plan and facade of the house if applicable
- A deed to the lot, if applicable
A decision is typically rendered within 48 hours. Your representative will draft a loan commitment document outlining the details of your loan. You will receive this document at closing, but will be provided with a copy in advance for review.
Meet Closing Requirements
At your closing, you will need sufficient cash to cover the closing costs and minimum down payment associated with the purchase of the lot on which your home will be built. If you already own the lot, BB&T will consider equity in that property as a source for meeting down payment requirements. If your home site needs a well and/or septic tank, BB&T requires proof of site tests prior to closing.
Obtain Homeowners Insurance
Prior to the first draw on your loan, you must provide BB&T Home Mortgage a copy of a standard 12-month prepaid homeowners insurance policy, which must include "builder's risk coverage." This coverage protects you from financial responsibility for any damage, theft or liability that may occur while your home is under construction.
Begin Drawing on Your Loan
Down payment funds that remain after closing will be paid to your builder at the start of construction. When these funds are exhausted, you can begin drawing funds from your loan to pay construction costs. You will not start making interest payments until you begin using these loan funds. Your payments during the construction phase are interest-only and are calculated based upon the outstanding loan balance.
Manage Cost Overruns
It's not uncommon for a homeowner to make modifications or upgrades to the original plans when building a new home. If this occurs during the construction of your new home, you must pay any cost increases that result from such changes. Remember, original loan amount can be reduced prior to modification to your permanent loan but may not be increased.
Pay for Home Inspections
Generally, BB&T Home Mortgage requires four to six inspections of your home during the construction phase. To cover these inspection costs, appropriate funds will be disbursed per a predetermined arrangement with your builder.
Modify to Your Permanent Mortgage
The construction period concludes when BB&T receives the final completion certificate and occupancy permit, or its equivalent, from the local governing jurisdiction, and when BB&T performs a final inspection of the property. Shortly after your home is completed, we will modify your construction loan into the permanent mortgage you have chosen.
Establish Your Escrow Account
Escrow accounts for real estate taxes and insurance will be established after your home is completed and after your loan modifies to the permanent loan. You will be responsible for all tax and insurance payments during the construction phase. Also, when your construction loan is modified to the permanent mortgage, you will be responsible for the reserves needed to establish your escrow account.