Home Construction Loans
There are two parts to a construction loan.
- The first part is temporary financing that is used during the construction phase of your new home.
- The other part of a construction loan is converting to permanent financing.
This is why you will see lenders calling their construction loan program, Construction/Perm Loans.
Here is some basic information that you need to know about construction loans.
- We require 10% equity in the loan. The equity can be 10% down or if you own your land free and clear, then we can use the value of your land towards your 10%.
- You need to have a 680 credit score or better to qualify.
- You do not have to use a builder on our approved list. We will need to do a credit check and your builder and have some information from him in order to get your builder approved. But I will handle all of that.
- We do allow for Self Builds if you have prior experience building a home.
- We do require that you have 6 months of payments in reserve on top of the 10% equity.
- The first 12 months of your construction loan are interest only. Meaning, you only pay interest on the amount that you have drawn off of the construction loan. So on month 2 if you have taken a $50,000 draw, then on month 3, your payment is interest only based on the $50,000 draw.
Advantages Of Using South State Bank
- Personal Service - We are with you every step of the way. When you request a draw, I will be there to help walk you through that process. A normal draw request should only take 24-48 hours to receive the funds. SouthState Bank allows you to draw those funds into your personal construction account with us or for us to fund the draw directly to the builder. In either case, you have to approve the draw request.
- South State Bank services your mortgage during construction and after the permanent financing. So I will be there with you every step of the way. You can even make your payments at our local branches.
- We allow you to build in a 10% incidental amount to ensure that you have plenty of funds. Your permanent financing is only for the total amount of construction funds that you use.
- With our one time close construction loans, your interest rate is locked in upfront, so once your home is complete and you have the certificate of occupancy in hand, then we will modif your loan into permanent financing. So no need to refinance into permanent financing.
Here is an example of how the process should work.
Let's assume that you own a lot and you are ready to build on it.
1. You need to get pre-approved with a lender to ensure that your credit and income meet the parameters to obtain financing.
2. You need to find a builder that you are comfortable with. There are some resources for you to do that. The Madison County Home Builders Association in Huntsville, or The Birmingham Builders Association, or in Mobile The Home Builders Association of Mobile can help.
3. Once you have found a builder and have a budget and plans in place, your next step is to secure financing.
4. Now our process starts. At this point, you are between 4 and 6 weeks from closing on the construction loan. We will order an appraisal that is based on the plans and specs and the value of the lot. I will also send all of this information to an underwriter who will underwrite your loan. Once we have everything, then we can close on your construction loan.
After Closing on your Construction Loan
1. Once you close on your construction loan, we will set you up an account for you to disburse money from.
2. Now you are ready for the builder to get started. The builder may ask for an initial disbursement to buy materials and pay his workers. After the initial disbursement, the bank will guide you through getting additional disbursements as the work is completed. The bank will inspect the new build to ensure that the build meets the disbursement requirements.
3. During the building process you will need to have a builder's risk insurance policy in place.
Construction Loan Programs that we offer.
30yr Fixed 15yr Fixed 10/1 Arm 7/1 Arm and a 5/1 Arm
On all of these programs that we offer, the first 12 months is interest only on what you have drawn.
Here is a list of items that we will need you to have in order to get started on your construction loan.
- Plans and Specs for the new build
- Cost Estimate
- Contract with a licensed builder
- If you are doing a self build, then we do not require a contract, but we do require a resume of your building experience.
If you would like to sit down and talk about a construction loan, please feel free to contact me. Look at what previous customers have to say Zillow.