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Planning for success
Construction loans are generally made for a six to 12 month term with interest paid monthly. The interest is based on the amount of money disbursed. The bank requires a minimum of 25 percent of the total cost of construction in cash and/or land equity. You will need to show proof of sufficient assets to provide a 10 percent contingency for cost overruns, preferably in cash reserves, and cash to cover closing costs and to establish reserves for taxes and insurance.
Budgeting & allowances
Careful budgeting is extremely important, especially including allowances for unforeseen events. Uncontrollable events such as strikes, untimely subcontractors, delays, etc., can impede construction and be more costly than originally thought. If your costs grow considerably, there is a chance you will not be able to satisfactorily repay the debt. Also, unpaid contractors and suppliers of materials may file liens upon the project, preventing the closing of your long-term mortgage.
If there is doubt about your knowledge and ability to act as your own general contractor, a licensed and bonded general contractor will be required to oversee the project.
Once you pre-qualify for long-term financing, the following documentation is needed for review:
- Financial statement form
- Estimate of construction cost budget
- Supplier/Subcontractor list
- Plot plan/Survey
- Water/Sewage design (if applicable)
- Heat loss analysis (Energy Rating)
- Engineers Report
- Construction Time Schedule
- Copy of building permit (if applicable)
- Contractors license (if applicable)
If your long-term financing will be either an FHA or VA loan, we will need further documentation to obtain the appraisal:
- Completed Description of Materials form
- Completed Builders Certification form
- Three copies of your plans, specs, plot plan, and heat loss calculations
To comply with Alaska Housing Finance Corporation and the International Building Conference of Building Officials standards, you need to have a certified building inspector inspect your home during construction, and comply with thermal standards. For private wells and septic systems, state or municipal health department approval and soils and percolation tests are required. You will be required to provide hazard insurance with Builders Risk Coverage to include floods if property is located in a flood plain.
Using your loan to make your dream a reality.