Construction Loans in Oregon FAQ
When does the construction loan term begin?
The Construction loans typically have a 12 month term which begins on the date the borrower signs the loan documents.
How do you know where to wire the funds?
At loan closing, the borrower signs a Construction Disbursement Account Information form that describes the bank account that is going to be used, we recommend opening an account specifically for the project. Should there be a change to the checking account; the borrower must notify Construction Lending immediately in writing.
Who does the borrower contact to request funds?
Each construction project is assigned to a CTP Customer Service Team whose contact information may be found by visiting the web site "My Loan Information." Also the borrower will receive a Welcome Packet with important information about the loan process and how to contact us.
How quickly can the initial draw request get processed?
The CTP Customer Service Team will be able to start processing the initial draw request two business days after the loan funds. It takes approximately two business days after the loan funds for the loan information to be transferred to our Loan Servicing Department. A borrower's loan information can be conveniently accessed online, "My Loan Information" within 48 to 72 hours of funding.
How much can the borrower get for start-up costs?
The borrower can request start-up funds to help get the construction project going. We will disburse 5% of the current construction amount. We will also disburse funds for upfront expenses such as permits and utility connections upon verification. We will not make another disbursement until the home is 10-15% complete and a copy of the permit is received.
Can the borrower get reimbursed for pre-paid items?
By detention, pre-paid items that are reflected on the budget and used as equity contribution are not reimbursable. The borrower can be reimbursed for items that have been pre-paid that are not in the budget as equity items.
What are hard costs?
Hard costs are direct costs associated with the labor and materials used for the actual construction of the home. Hard costs are also known as "direct costs", "board and nails”, "on-site costs" and "hard cost improvements." Hard costs are disbursed based on an inspected percentage of the overall completion of the project rather than the items allocated in the budget.
What are soft costs?
Soft costs are indirect or "off-site" costs not directly related to labor or materials for construction. Examples of soft costs include building permits and architectural fees. Soft costs are disbursed monthly on an "as needed" basis, with invoices, receipts, cancelled checks or other evidence of payment. However, soft costs such as builder overhead/supervision are disbursed in proportion to the percentage of completion of the home.
What are deposits?
Vendors for items like cabinets, light fixtures, windows, appliances or any other specialty improvement that requires custom craftsmanship usually require deposits. We will release up to 50% of the total amount budgeted in the specific line item for the following deposits:
· Window /doors
· Cabinets/appliances
· Flooring
· Custom Lighting
How does the disbursement process work?
Disbursements on a construction loan are designed to reimburse the borrower as the construction of the home progresses. We will disburse construction proceeds based on the amount of work that has been completed on the project. For example, if the construction budget is $100,000 and the project is 10% complete (based on the inspector's view), Home Construction Lending will disburse the borrower up to $10,000 on the project. This disbursement would be in addition to any advances or deposits the borrower may be entitled to receive. Disbursements for soft or direct cost expenses must be verified by an inspection.
Is there a set schedule for requesting draws?
There is no set schedule, but we require that no more than one draw per month be submitted.
How does the borrower request a draw?
To conveniently request a draw online, the borrower can go to our web site "My Loan Information". The borrower also may e-mail, fax or mail Draw Requests to us. (The borrower does not need to send the original Draw Request with a fax or e-mail.)
How will borrowers know if their draw request has been approved?
When we receive the borrower's Draw Request in the Disbursement Unit, we immediately order an inspection to verify the status of construction on the borrower's home. The inspection is performed within 3 to 5 business days from the time we receive the Draw Request. When the inspector verifies the percentage of completion and we receive verification from the title company that the property is free of mechanics liens, the Draw Request will be funded. A CTP Customer Service Representative will call the borrower to discuss the inspection results, the amount of the Draw Request and the date the borrower can expect the funds to be wired to his or her account. We advise that the borrower verify his or her bank's receipt of funds prior to issuing checks. Please note that the borrower’s funds may not be available until the next business day. The borrower can also access the status of his or her draw request 24 hours, 7 days a week by visiting our web site “My Loan Information”.
How long will it take for the borrower to receive the funds after the Draw Request has been made?
Deposits and soft cost expensed can be funded within 48 hours of receiving a paid receipt or invoice. For hard cost expenses, the disbursement will be released after we have received an inspection report performed by our local inspector and update from the title company indicating the title to the property is free and clear of any liens. We will review the inspection and title report and disburse the request up to the project completion percentage. This process takes an average of 7 business days.
How many inspections are allowed and what is the cost?
We allow the borrower to request one draw per month. The administration Fee that was paid when the loan closed covers the inspection costs.
Who does the inspections?
A third party, contracted on our behalf, performs the inspections.
What is the Lender's Contingency Account?
A Contingency Account is money set aside for unforeseen circumstances or cost overruns that may occur during the construction or improvement of a home. Disbursement of these funds is on an "as needed" basis and will generally be in proportion to the completion of the home. Of course, as with other costs, a Draw Request is required for disbursement of these funds. In addition, evidence of the overrun will also be required in the form of receipts, paid invoices or cancelled checks. Once construction is complete, any money remaining in the Contingency Account can be disbursed to the borrower upon his or her request.
What is the interest Reserve?
The borrower will accrue interest as funds are disbursed on the loan and it will require a monthly payment to satisfy this accrual. Because the borrower may be currently paying a mortgage, some loans are set up with an interest, reserve. The interest payments for the loan are debited from the interest reserve line item. There are generally enough funds in an Interest Reserve Account to cover all of the Interest payments that may be due during the construction term. If there is no money left in the Interest Reserve Account the borrower will need to make the interest payments. Interest payments are due on the 1st of the month. If the interest payment is not received by the 15th of the month, a late charge will be assessed. Additionally, disbursements will cease until interest payments are current.
How are deposits for kit and modular home handled?
We can disburse 75% of the funds allocated for the kit or modular home as a deposit. The remaining 25% of the funds designated for this kit or modular package are disbursed when the materials have been delivered to the site ("dropped") and verified by an inspection. If there are multiple drops required for the delivery of the materials, we will only pay for the materials delivered to the site.
What does the borrower do if an extension of the construction loan term is needed?
Loans that go beyond the required completion date are technically in default pursuant to the Construction Loan Agreement. If the loan has gone beyond this required completion date, all loan draws are on hold until an extension is granted. The borrower needs to contact the CTP Customer Service Team 30 days prior to the required completion date if the construction is not at least 90% complete.
Is there a fee if an extension is needed?
YES, there is a fee associated with an extension of the required completion date.
The fee is
· 0.50% of the loan commitment amount per month as provided in Section 3.1 of the Construction Loan Agreement or,
· 0.25% of the loan commitment amount per month if the borrower agrees to a 1 year pre-payment penalty
What is required to roll the construction loan to a permanent loan?
Loans are rolled to the permanent phase effective the first of each month. The final Draw Request should be received no later than the end of the construction completion month. Our Roll-to-Perm Department will contact the borrower once the final disbursement has been made. The borrower may also contact us to discuss roll-to-perm options.
When the final Draw Request is made, the Loan Administrator will prepare the loan file for processing and reprising by the Roll-to-Perm Administrator. Loans are rolled to the Permanent phase effective the first of each month. The loan would then be eligible to "roll' from the construction phase to the permanent phase.
How is the Final Draw Request made?
A final Draw Request can be made when the home is approximately 90% complete. The borrower can request the remaining 10% of the construction funds and roll the loan to permanent status, provided that the Final Conditions (outlined in Exhibit C in the Construction Loan Agreement,) are satisfied.
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