At CBTx, we've been helping our customers achieve their dream of a new custom home for a long time. To start the process for building your own dream home, you'll need to provide the same documents as you would for a conventional home mortgage, including a loan application, bank statements and proof of income. We will also need to know if you already own the land, the cost of construction, and how much you intend to borrow for the project.
With new construction, the appraisal is based on finished property value instead of the current value. The appraised value will determine the maximum amount you can borrower for your project. A detailed set of house plans and building specifications is required for the pre-construction appraisal.
The construction loan process requires a detailed cost estimate from an experienced contractor ("builder'). The estimate includes both “hard costs” - materials needed to construct the home - and “soft costs”, which are incidental fees and services that will be incurred during home construction. In the State of Texas, the homeowner cannot be the contractor if the proposed new home will be homestead property.
The Construction Phase
CBTx construction loans allow 6-12 months for the completion of construction, depending on the scale of the project. The loan takes the form of a construction line of credit disbursed by the bank in “draws” as the construction progresses. The contractor completes a percentage of construction and submits an invoice to the lender. A bank representative will make periodic inspections of the project to insure that disbursements match the progress of construction. The homeowner must approve each builder draw request before funds can be disbursed to the builder.
Very important: You should inspect the property regularly during the construction process and bring up any issues as soon as possible.
Our constructions loans require "interest-only" payments during the construction phase. Monthly or quarterly interest payments are recommended.
End of Construction
When all parties agree that construction is complete, we will send out the appraiser to conduct a final inspection. The appraiser will compare the "finished product" to the proposed home which was described in the original plans and specifications. If all work has been completed in a satisfactory manner, the appraiser will issue a final inspection report. In some areas, an inspection must also be performed by the local building authority, who must issue a certificate of occupancy before construction is considered complete.
Keep in mind that “complete” may be different in a contractor’s mind than in the homeowner's mind. If any items that were included in the original construction contract have not been installed, painted, repaired, etc., we recommend that you create a “punch list” of items that must be finished before the contractor gets final payment. (After the bank pays the final draw, it can be difficult to get the builder’s attention.)
After construction is complete, the construction loan is converted to a permanent mortgage loan. Most of our permanent loans feature a 30-year amortization period and a fixed interest rate. The principal of the permanent loan will be the balance of the construction loan plus accrued interest. In many cases, even the closing costs for the permanent mortgage can be rolled into the final loan!
Ready to apply for a Construction Mortgage? Start your secure online Mortgage Application now!