Construction financing | Rehab or Renovation loan

Construction Loan | one closing

The following information is intended to assist you with the construction loan process. It is not all-inclusive. 

For complete info:  consult with your construction & renovation Loan Officer
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What do I need to apply for a construction loan?

In addition to the standard asset, liability, and employment documentation, you will need to provide plans, specifications, and a builder contract.  If you are the General Contractor, we will need a cost breakdown plus any subcontractor's bids and fixed price contracts. 

What is required before funds can be advanced?

  • Prior to disbursement of funds, you will need to provide a copy of the building permit, wall check survey (well log, if applicable) and hazard/builders risk insurance.
  • Prior to your loan's conversion to permanent financing we require updated hazard insurance, well certification, a final survey and the use and occupancy certificate.
  • Other items may be required depending on the type of construction and permanent loan selection.

What fees are associated with the construction process?

We collect a fee at settlement, which allows for up to 5 inspections and modification to a permanent loan.  There may be additional fees if you exceed the standard number of inspections and draws.

Can funds be re-advanced?

You may make principal reductions at anytime, but those funds will not be available to be re-advanced later.

When is private mortgage insurance required?

Typically, private mortgage insurance PMI  is required on the permanent loan when your down payment is less than 20%. Typically it is not required during the construction loan process.

Can I choose my own Builder?

Yes. You may choose your own builder, but they will need to complete our builder application.  Choice Finance® reserves the right to deny participation to any builder, who does not meet our requirements.

Can I be my own general contractor?

Our goal is that your house is completed on time and on budget.  If you possess the necessary skills to do so, subject to our approval, you may act as your own General Contractor.

Who is my primary contact during the construction process?

Once your loan is approved a Construction Loan Administrator (CLA) will be assigned to aid you during the construction process.  The CLA is available for any questions you may have and will aid you and your builder in the scheduling of inspections and the disbursement of funds.

What is the draw schedule?

The draw schedule details the amount available to be disbursed and the necessary requirements to be met throughout the construction process.  Generally, there are 7 draws for a stick-built house and 4 draws for a modular house.

When will I receive a draw schedule?

You will receive a draw schedule prior to closing.  Should you or your builder have any specific needs, please consult with your CLA.

What is the standard method for disbursing funds?

Our preference is to deposit funds into a checking account.  If necessary, other methods are available.

How does the draw process work?

We will send out an inspector, upon you or your builder's request for the advance of funds.  Upon verification of work completed, we will disburse funds.

How are payments calculated?

Payments are interest-only based on the outstanding balance.  Payments begin one month following loan closing and continue monthly thereafter.  A bill is mailed to you 15 days before the payment is due.

When should I lock in my permanent rate?

It is important to lock in close to the end of construction to avoid additional fees that you may incur if your lock expired before you convert to your permanent loan.  It is wise to coordinate this date with the aid of your builder, and Choice Finance Loan Officer.

What if my rate lock expired before my home is complete?

If your rate lock expires before your home is complete, we may be able to extend the lock for a fee.

What is modification?

Modification is the process of converting your construction loan into a permanent loan.

What do I need to modify?

Before modification you must meet all the requirements detailed in the commitment letter and draw schedule we provide.

When are escrows collected?

Escrows for property taxes and insurance are generally required when you convert to a permanent loan.  You must anticipate the escrows associated with the permanent financing.

May I pay down on my loan at any time without penalty?

Yes. You may take principal reductions anytime without incurring a penalty.

When can I move into my new home?

We do not make this determination for you.  This is an issue you need to discuss with your builder as well as the county officials where your new home is located.

What if my home is not complete and my loan has matured?

Please inform your Construction Loan Administrator as soon as you think this situation may be a possibility.  We may be able to extend your maturity date with the completion of a Note Modification Agreement and an additional fee.

Required items for Loan Approval

The following is a list of information needed to process a request for a construction/permanent loan.

  • A copy of the contract to purchase the land, or if the land is already owned, a copy of the settlement sheet.
  • A copy of the ratified construction contract that outlines the proposed cost estimated by the builder to complete the home. IF the owner is to act as the general contactor, then a cost estimate, supported by written bids from subcontractors will be needed, as well as the cost of permits, insurance, engineering, and any indirect costs.

*NOTE- If borrower is acting as owner General Contractor a resume detailing qualifications will be needed.  A construction Manager may be required.

  • A detailed set of specifications covering all materials to be used in the project (e.g. siding, roofing, electrical, plumbing, appliances, etc.)
  • Blueprints with complete dimensions and four exterior elevations shown.  These plans should be clearly marked and should reflect any final revisions.
  • A copy of the plat showing the proposed house location designated septic area and well locations.  If the well has already been drilled then include a copy of the well log.
  • An area map showing the exact location of the lot along with any other helpful information as to how to find the lot. Please place a sign with the borrower's name at the entrance to the location of the lot.
  • Assets, income,..
  • Complete an application

Owner General Contractor Acceptance Process

Borrowers desiring to act as their own general contractors should have experience in the building industry, although not necessarily be a builder.

  1. Borrowers desiring to act as their own general contractors should have experience in the building industry, although not necessarily be a builder.  The request for a borrower to act as his own general contractors must be accompanied by a detailed cost breakdown supported by bids.  Owner GC borrowers should have 10% of their own funds in reserve after the required down-payment and closing costs.
  2. The completed resume will be turned in to the wholesale department, along with a detailed cost breakdown supported by written bids.
  3. Credit/supplier, subcontractor and customer references will be verified.  The results of the references will be recorded on the Reference Check Sheets.
  4. The Construction Loan Manager reviews the information provided and based on the borrower's overall experience, determines the acceptability of the borrowers to act as their own general contractor.

Important Things About a Construction Loan

  • A Draw Schedule will be provided prior to loan closing.  The Draw Schedule details the amount available to be disbursed and the requirements that need to be met throughout the construction process.  All draw schedules need to be accepted by borrower and builder.
  • Depending on the Lender used, a Loan Administrator/Consultant will be assigned to aid the borrower and builder during the construction process.  They are available for any questions regarding the construction process and will also schedule inspections and manage the disbursement of loan funds.
  • Prior to the first disbursement, we will need a copy of the building permit, wall check survey, well log (if applicable) and evidence of builders risk insurance.
  • All subsequent draws require an inspection.  We will send out an inspector upon request.  Upon verification of work completed, we will disburse funds.  The Draw Schedule allows for a maximum of five (5) inspections.  IF more than six inspections are needed, fees will be collected prior to disbursement of the proceeds.
  • Funds are disbursed for completed work only based on the inspector's report.
  • We hold 10% of the construction cost until the house is complete and all the requirements detailed in the Loan Commitment Letter, Residential Construction Agreement and the Draw Schedule have been met. Please note that our requirements are often more specific than the local governing authority.
  • If construction of the house will not be complete within the initial construction period we may grant an extension. A fee will be imposed to extend the loan. This fee may be paid at the time of extension or added to the loan payoff. Extending the term of the loan may compromise the ability to modify to permanent financing if the construction period exceeds twelve (12) months.
  • Payments are interest only based on the outstanding principal balance.  The borrower will receive a bill approximately fifteen (15) days before payment is due.
  • Principal reductions may be made at any time without incurring a penalty.  However, those funds will not be available to redraw at a future date.
  • It is important to lock in the rate on the permanent loan near the end of construction to avoid additional fees that may be incurred if the lock expired before conversion to permanent financing.  It is wise to coordinate this date with the aid of the builder, and Lender Administrator/Consultant.
  • Modification is the process of converting construction financing into permanent financing.  All the requirements of the Loan Commitment Letter, Residential Loan Agreement and Draw Schedule must be met.  At modification the borrower will be required to pay into a tax insurance escrow, as well as interest due on both loans and other costs.

Contact your Choice Finance® Loan Officer for any questions and to help you with your application.


Rehab/Renovation loan

Typical scenario includes a fixed and adjustable rate option.  The adjustable rate is Prime plus 1.00 percent. There is only one application to complete and one settlement.  PITI payments aren't made until loan closes.  A rehab and renovation loan are the same thing, both are used to repair or improve an existing house.  Rehab products can be used to finish a house that is under construction but was never completed.  To do so the home must be 80% completed and verified by the appraiser, and have proper title insurance in place since work began.  This rehab financing may also be used towards some kitchen appliances and landscaping. 

The property does not have to currently be in "livable condition".  The current condition of the property doesn't matter as long as repairs will bring it up to code and allow it to be occupied.  We want you to use a general contractor, however for things like the roof and carpet we will allow a roofing and flooring company to do the work.  We will require proof of their liability insurance and the General Contractor must provide a valid license for that state.  Property inspection fees and fees for Title updates can be included in the loan amount.  There is a mandatory 10% contingency reserve we will require which is 10% of the total rehab cost.  However, we will let you finance this into the loan amount as well. 

Cash out of your rehab project may also be allowed depending on the program.  When purchasing the property the loan amount will always be based on the purchase price of the home plus the rehab project costs, and not based on future appraised value.  We have programs for condominiums as long as the common wall is not affected.  In general, most of our rehab programs require that the amount of the rehab not exceed 50% of the "as completed" value.  We do have a program that will allow up to 75%. 

Contact us and we will be happy to assist you with any questions and get your rehab financing in place!



Give me my construction/rehab loan options- rates, fees, good faith estimate
Choice Finance® Loan Officer