Construction Loan FAQ
Construction Lending Frequently Asked Questions
- What is construction-to-permanent financing?
- What type of construction-to-permanent loans does GMAC Mortgage, LLC dba ditech.com offer?
- What documentation is needed to apply for a construction-to-permanent loan?
- Do construction-to-permanent loans carry a higher interest rate than regular loans?
- What is a Cap Lock Rate?
- Can construction-to-permanent loans be used to finance major rehabilitation projects?
- Do I need to sell my current home before building a new one?
- What is needed to get the builder accepted and the construction project approved?
- Can I pay down my loan balance at the end of construction before I modify into a permanent loan?
- What will happen if I need more time to complete construction?
- What is a draw?
- How do I request my first draw?
- How will I know if my draw request is approved?
- Can the check be made payable directly to the builder?
- How long does it take to receive a disbursement?
- What is required for the final draw?
- Now that I have made my final draw, what is needed to modify my construction loan to a permanent mortgage?
What is construction-to-permanent financing?
Construction-to-permanent financing is a loan program combining a short-term loan that finances the cost of construction, which turns into a permanent mortgage loan when the construction is completed.
What type of construction-to-permanent loans does GMAC Mortgage, LLC dba ditech.com offer?
We offer two types of construction-to-permanent financing products: a one close option and a two close (modification-to-permanent) option. We provide financing solutions for new construction, purchase renovation, and renovation of an existing residence, all of which can include land acquisition.
What documentation is needed to apply for a construction-to-permanent loan?
In addition to the typical loan documents required for any mortgage application, GMAC Mortgage will ask you to supply information on the builder, including trade references, worker's compensation and general liability coverage, the builder's license (if applicable), a copy of the construction agreement between the builder and the borrower, and a copy of the construction draw schedule.
Do construction-to-permanent loans carry a higher interest rate than regular loans?
No. Depending on the loan program and market conditions, the interest rate charged during construction is either Prime based plus a margin on the two close (modification-to-permanent) option, or at the Cap Lock Rate on the one close option.
What is a Cap Lock Rate?
The Cap Lock Rate allows you to lock in an interest rate for an extended period. It is capped at this interest rate, which means that if market conditions change, the rate will not exceed the capped rate. If interest rates drop, however, the capped rate may float down prior to converting to a permanent loan.
Can construction-to-permanent loans be used to finance major rehabilitation projects?
Absolutely! As long as the renovation costs are $25,000 or more, we offer financing to purchase a home and renovate it or to renovate your existing home.
Do I need to sell my current home before building a new one?
No. Our construction-to-permanent loan programs offer a variety of options so that you can live in your house while the new home is being built.
What is needed to get the builder accepted and the construction project approved?
GMAC Mortgage will review the builder information during the loan process. Documentation required to accept a builder includes a builder profile providing trade references, a copy of worker's compensation, general liability and builder's risk insurance, and a builder license, if applicable. The documentation needed for the construction project approval includes a copy of the construction contract signed by the borrower and builder, a cost breakdown and draw schedule of the project.
Can I pay down my loan balance at the end of construction before I modify into a permanent loan?
Absolutely! Our construction-to-permanent loan programs provide several options that make a principal reduction payment possible prior to your construction loan modifying into a permanent loan. This will decrease the time it takes to pay your loan in the one close product. You can also pay down your loan so that your monthly principal and interest payments on your permanent mortgage are lower on the two close (modification-to-permanent) product.
What will happen if I need more time to complete construction?
The maturity date of your construction loan may be extended during the construction period. The length of time needed to complete the construction project and modify to a permanent loan should be discussed with your construction mortgage consultant and builder at the time of application. Please note, however, that there may be costs associated with extending the date. GMAC Mortgage is not obligated to extend the time period to complete the construction project.
What is a draw?
A draw is the disbursement of funds through a request submitted by the builder for work that is completed on the home.
How do I request my first draw?
Your builder will be required to send the following items to our Construction Lending department:
- Signed draw request form
- Copy of the building permit
- Evidence of builder's risk insurance
- Inspection report (ordered by Construction Lending when builder requests draw)
- Title continuation as required by title commitment and state statute (ordered by Construction Lending when builder requests a draw)
- Lien waivers as required by title company or lender
How will I know if my draw request is approved?
When the inspection, title endorsement and any other necessary documentation is received, we will disburse the funds made co-payable by check to both the borrower and the builder.
Can the check be made payable directly to the builder?
All disbursement checks are made co-payable to the borrower and the builder and sent to the builder unless we are notified in advance by the borrower or through the signed GMAC Mortgage disbursement authorization form.
How long does it take to receive a disbursement?
Generally, disbursements are made within 3-5 business days pending inspector availability and receipt of all required documents. An estimated fee will be collected at settlement to pay for these inspections and title updates for the draw requests to be made during the construction process.
What is required for the final draw?
For your final draw request, your builder will be required to send the following items to our Construction Lending department:
- Signed draw request form
- Notice of completion as required by the title company
- Certificate of Occupancy/Occupancy Permit issued by your local building authority
- Final inspection report (ordered by Construction Lending when the builder requests the draw)
- Title continuation as required by title commitment and state statute (ordered by Construction Lending when builder requests draw)
- Final lien waivers as required by title company or lender
- Copy of homeowner's insurance policy declaration page and paid receipt
- Final property address
Now that I have made my final draw, what is needed to modify my construction loan to a permanent mortgage?
If you've chosen the one close option, once the final draw is completed, we will convert your construction loan to a permanent loan. For the two close (modification-to-permanent) product, documents will be updated, if necessary, and the borrower will re-qualify. A modification closing will occur so your construction loan can convert to a permanent loan.