Does
Pacifica South Bancorp finance projects where construction has
already started?
How
is interest calculated and paid during construction?
In a situation where borrowers loan amount is
greater than remaining costs to build, when does Pacifica South
disburse these funds?
How are disbursements
made?
What is the difference
between contractors and lenders contingency?
What are the items needed
from a borrower at completion of construction in order to roll into
permanent financing?
Do
events of default occur on a construction loan?
If
a realtor has a property listed for sale, but is unable to get
conventional financing due to a building code violation, how would
this loan fit within Pacifica South’s loan products?
Does
Pacifica South offer a Construction-to-Permanent Loan product for an
owner builder?
How
is a borrower's down payment calculated, and when is that payment
made?
What
is a Draw?
What
are "On-site" and "Off-Site" costs?
How
will I know if my Draw Request has been approved?
Can
you tell me more about the "Contingency Account"?
How
are On-Site and Off- Site Costs disbursed on my loan?
How
do I request my first draw?
How
long does it take to receive a disbursement?
I
heard that some improvements require deposits. Is that true?
When
do I get reimbursed for these deposits?
What
account will my loan funds be wired to?
When
should I inform you if there are changes on the project?
What
happens once I've reached my final Draw Request?
Does
this mean I have to sign new loan documents?
How
do I roll my loan over to the permanent phase?
This is considered “broken
priority”. In order for us to consider the loan request, the
borrower will need to provide evidence of payment on work performed,
appraiser to address any adverse conditions due to construction in
progress, and title company willingness to insure project.
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Interest is charged on
disbursed balances, not the whole loan amount. Borrowers are
billed every month the interest due on their loans. The interest
amount due will be automatically charged to the allocated interest
reserve account in the borrower’s loan budget, or paid directly
from the borrower’s own funds.
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This situation creates an
“excess equity” position. If the equity is in the lot value,
these funds will be held until the end of construction. If this
excess equity is in prepaid construction funds, then borrowers
will have the ability to draw on those funds during construction.
The draw against these funds will be in connection to the percent
of completion of the construction project. The excess equity
disbursed to borrower at completion is limited to an 80%
Loan-to-Value (“LTV”) restriction, and the loan being in good
standing. If LTV is greater than 80%, these funds will be used to
pay down the principal loan balance, and the new loan commitment
will re-amortize.
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There are two types of
disbursements, off-site and on-site costs. All disbursement
requests have to be accompanied by a draw request form. The draw
request form is executed by borrowers and contractors, specifying
the amount of the draw and the type of draw, off-site or on-site
costs. Additionally, all off-site costs draws should be
accompanied by a receipt and or cancelled check, reimbursing the
borrowers for the expense of that line item. Builder profit and
overhead is disbursed with accordance to overall percentage of
completion of the construction project. An on-site cost
disbursement requires an inspection, and a title endorsement that
searches for any liens recorded against the property. Upon receipt
of the inspection and title update, funds are wired directly to
the borrower bank account.
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Contractor’s
contingency is funds available to the contractor to cover cost
overrun, and are part of the total contract price. At completion of
construction, these funds are generally unconditionally available to
the contractor by contractual agreement.
Lender’s contingency is funds available to the borrower’s
benefit, to cover any unknown and unplanned conditions that may not
be not included in the builder’s contract. These funds if not used
at completion, are for the borrower’s benefit; the contractor is
not entitled to any part of these funds.
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Borrowers
are required to furnish the following items:
a.
Notice of Completion
b.
Certificate of Occupancy
c.
Affidavit from the general
contractor affirming all subcontractors have been paid in full
d.
Letter from borrowers stating
that house is complete to their satisfaction
e.
Unconditional Lien Waiver from
general contractor
f.
Pre-paid home insurance
policy
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Events of default do occur
on construction loans. The most common event of default on
construction financing is a non-monitory event of default. This is a
list of some of these events:
a.
Lien or Stop Notice on a construction project
b.
Construction Budget shortfall
c.
Permits have not been issued after 30 days of closing
d.
Construction has halted for more than 30 days
e.
Expired construction term
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This
is a Construction-to-Permanent Loan; Pacifica South will finance the
purchase of property and the cost to cure.
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If a
borrower is a licensed general contract, or an individual with an
extensive building background, Pacifica South will entertain this
request as long as sweat equity is not used and borrower
demonstrates the ability and expertise in home building SFR.
Occupancy intent has to be clear, as we will not allow speculative
financing on these programs. Financing for speculative building is provided in our
commercial loan programs.
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A
borrower's down payment is the difference between the total
construction costs (including land, closing costs and reserves) and
the amount of the loan. Borrowers will receive credit for any
prepaid expenses or equity in the land; all those prepaid items have
to be documented by paid receipts and or cancelled checks. The
balance of the funds to complete the construction are due at the
loan closing, just as it would if borrowers where purchasing an
existing home.
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Draw is a request to have funds
disbursed from your construction loan. Your disbursements are
intended to cover specific expenses incurred during your home's
construction, as itemized in the Cost Breakdown section of your
Construction Loan Agreement. Construction expenses fall under two
basic categories: direct and indirect costs. This distinction is
important to keep in mind as disbursement procedures differ for
direct and indirect costs. A Draw Request Form is part of your
Construction Loan Agreement.
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"On-Site" are costs
associated with the labor and materials used for your home's
improvements. Also known as "board and nails" or
"Direct Site cost improvements," direct costs typically
include items such as lumber, appliances and plumbing -things used
in the actual construction of your home. The direct costs will be
disbursed based upon the percentage of completion as determined by
the inspector.
"Off-Site", also
called "indirect," are costs not directly related to labor
or materials for the actual construction of your home. For example,
building permits and architectural fees are off site itemized in the
Cost Breakdown section of your Construction Loan Agreement. Builder
Overhead/Supervision are disbursed in proportion to the percentage
of completion of the home.
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When your Draw Request has been
received but our designated person, they will order an inspection to
verify the status of construction on your home. The inspection is
performed within three to five business days from the time your Draw
Request is received. When the inspector verifies the percentage of
completion and we receive verification from the title company that
your property is free of mechanic's liens, your Draw Request will be
funded. This process may take up to 10 business days. A Disbursement
Loan Administrator will call you to discuss the inspection results,
the amount of the Draw Request, and the date you can expect funds to
be wired to your account. We advise that you verify your bank's
receipt of funds prior to issuing checks. Please note that your
funds may not be available until the next business day.
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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 in
the form of receipts, paid invoices or canceled checks will also be
required.
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On-Site are disbursed as
improvements are completed based on a percentage of completion.
Off-Site are disbursed with invoices, receipts, canceled checks or
other evidence of payment attached to your Draw Request.
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For your first On-Site draw, you
must include a copy of the building permit in the package you
deliver to our Disbursement Unit. (The building permit is required
only on your first On-Site Cost draw.)
First Draw – On-Site (Direct) Costs:
1.
A completed Draw Request form
2.
A copy of the building permit
For Off-Site Cost draws, you
will need to submit the following:
Off-Site (Indirect) Cost Draws:
1.
A completed Draw Request form
2.
Copies of applicable invoices, receipts or canceled checks
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Your disbursement will be
released after our designated person has received an inspection
performed by the local inspector and an update from the Title
Company indicating the title to the property is free and clear of
any Liens. Your Disbursement Administrator will review the
inspection and Title and disburse your request up to the project
completion percentage. This process may take up to 10 business
days.
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Yes, some vendors for items such as cabinets, windows, or any
specialty improvement that requires custom craftsmanship requires
deposits. The amount of the deposit is typically 50% of the total
cost of the improvement and paid directly to the vendor. The
remaining 50% of the improvement is paid after installation.
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Requests for deposit
reimbursements are usually made along with your normal Draw Requests.
You should submit evidence of your payment of the deposit amount for
reimbursement.
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At your loan closing, you signed
a Construction Disbursement Account Information form that describes
the account you opened for the purpose of receiving wired funds.
Should there be a change in your account information, please notify
us immediately in writing.
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Immediately! Keeping us
informed of any changes allows us to anticipate any unusual requests
that may include a change to the budget or to plans. For example, a
retaining wall that was not required at the time of the original
county or city approval may later become a requirement. When you
inform us, we will in turn alert the inspector that there are
changes to the improvements. This will prevent any potential
discrepancies in the inspection report. Again, all changes are
subject to lender approval.
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By the time you make your final
Draw Request, your home should be complete. You can then request
your remaining loan funds, and "roll" your loan into the
permanent loan phase, provided that the conditions outlined in your
Construction Loan Agreement are met.
When requesting your final Draw,
the following items must be submitted:
If you're an Owner/Builder:
Final Draw Request
Affidavit from you stating all material providers and subcontractors
have been paid in full
Copy of recorded Notice of Completion (if applicable) or a
Certificate of Occupancy
Evidence of current homeowner's insurance
Final Progress Inspection
Your mailing address and e-mail address for future correspondence
If your home was built using a
general contractor:
Final Draw Request
Affidavit from general contractor stating all material providers and
subcontractors have been paid in full
Unconditional Lien Waiver Upon Final Payment signed by general
contractor
Copy of recorded Notice of Completion (if applicable) or a
Certificate of Occupancy
Evidence of current homeowner's insurance
Final Progress Inspection
Your mailing address and e-mail address for future correspondence
In addition, your loan must be
in good standing according to the terms of your Construction Loan
Agreement. Once your final Draw Request has been funded, your
construction loan will be rolled into a permanent loan.
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Absolutely not! That's the beauty of our
Construction-to-Permanent Loan. Your loan documents were created
specifically to cover both the construction and permanent phases of
your loan. So you can rest assured that you have permanent financing
when your home is completed.
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When you make your final Draw Request, your Disbursement
Administrator will prepare your loan file for processing and re-pricing
by the "Roll to Permanent" Administrator. Loans are rolled
to the permanent phase effective the first of each month. Your loan
would then be eligible to "roll" from the construction
phase to the permanent phase. The Roll-to-Perm Department will
contact you and inform you when your loan will convert into the
permanent loan.
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