Whether you are building your home as an Owner Builder or hiring a General Contractor, there are several people that will be involved with your loan process in addition to the loan officer with whom you choose to work. Knowing the roles of each of these people will make your loan process flow smoothly and quickly.
Here is a brief summary of each person and their job description. All of these people working together are needed to get you from application to closing in a timely and stress-free manner.
You and Your Family.
As important as the construction loan professional is to your application, your family and you almost completely dictate the pace and direction of the loan process.
All members of the family will need to understand the time commitment involved in this project. It is crucial to remain focused on the goal of building your dream home.
The Processor.
The loan processor will often be your primary point of contact for all items related to documenting your loan application. The processor will collect any and all required documents and package the loan file for submission to the underwriter.
Typically, the processor and the loan officer work together on the file to insure that the loan closes properly and in a timely manner. It is good advice to learn the name of your processor and develop a good working relationship with him or her.
The Appraiser.
The appraiser has the job of examining your home plans and specifications to determine the final "as-built" value of your new home. This can be a tricky process with new construction, as the house is not yet built and everything is based on the plans.
The appraiser must follow certain rules regarding how an appraisal is conducted. They must locate similar homes within a close proximity to your location (usually 1-3 miles in most cases), and they must also be on similar size land. This is called finding "comparables," or "comps." A "comp" is not a "comp" if the home has not sold on the open market within the last six to twelve months.
The best advice is to know the area you are building and not try to build a home that is way out of the ordinary for the area. Borrowers often want to build a home that is significantly larger and more expensive than the other homes in the area (called "overbuilding for the area"). They may be perfectly qualified as a borrower, but if the appraiser has problems establishing a proper appraised value, the loan could be denied.
The Underwriter.
The underwriter is the person who makes the final decision on your loan approval once all of the documentation is complete. Many lenders now use a computer based underwriting system to issue a pre-approval, but there is always a human to review and verify the documentation as the last step of the process.
The underwriter's main job is to review and verify the submitted documentation and compare it to the loan program's guidelines. If everything fits and is in order, the underwriting process is a quick and painless affair. If the documentation is questionable or does not exactly fit the guidelines, underwriting can take longer and require additional paperwork.
Once the loan receives final underwriting approval, your loan will move from the underwriter to the lender's closing department. There, the loan's documents will be prepared and sent to your closing agent for you to sign and "close."
The Closing Agent.
The closing agent is the person who will assist you with the signing of all the final loan documents. This is typically an attorney or a title company. Generally, you can freely choose between either of these to do the closing for you. A few states, however, require you to use an attorney for the closing.
Once your closing agent receives the files from the lender, he or she will need to prepare the documents, including the note, the deed and the settlement statement (called a "HUD-1" most of the time). This usually takes the closing agent a day to do all of this, so schedule accordingly with them. Remember that construction-to-permanent loans are actually two loans in one, so there will be a ton of paperwork for them to prepare and for you to sign.
The fees for closing agents vary around the country and are usually pretty consistent from one to another within a particular market area. Nearly all lenders will allow you to choose your own closing agent, so it is advisable to check around and get an estimate of the costs.
The Insurance Agent.
You will need insurance in place prior to closing your new construction loan. You should contact your insurance agent as soon as you do your application to be sure that he or she can provide the type of insurance you will need. Your loan officer should be able to describe the type of insurance coverage that you will need for the construction loan.
The General Contractor or the Site Supervisor.
If you are hiring a builder, of course your general contractor will be an integral part of your loan process. Your lender will almost always require that the general contractor meets a particular set of criteria. So, make sure that your builder can meet these qualifications prior to applying for the loan.
If you are doing an owner builder construction loan, you may want a "site supervisor." Some lenders will actually require one, though this is not always the case. Typically, the site supervisor does not need to be a licensed general contractor. But, they do require the person to have relevant and recent residential construction experience. This means your buddy who builds highways or office buildings does not qualify to be a site supervisor.
Your Sub-Contractors.
If you are acting as an owner builder, your sub-contractors and suppliers are a very important part of completing your building budget in a timely manner. Therefore, it is crucial that you begin the budgeting process as early as you can.
One tip for owner-builders about getting bids: do not underestimate the number of sets of plans you will need to get through the bid process. It is likely that you will not get back every set you give out. Five or six sets of plans will not be adequate. We recommend getting at least a dozen sets and always keeping two for you.
The County Building Department.
Before you even make an offer on your land, you should contact that county's building department and learn the requirements for building permits.
It is also important to know and understand which building code the county follows. This is especially important if you are buying your plans from anyone other than a local architect, who should naturally know the local rules.
Plans from plan sites on the internet, while often very good, are not typically done to a particular code. You just need to ask these questions of the county and of the plan supplier to make sure you can use the plan without modification.
If you understand the roles of all of the people discussed in this article, your construction loan will be a smoother process, which means you can begin building your new home that much faster.