BUILDING YOUR DREAM HOME GUIDELINES FOR SUCCESS

Motor City Coop Credit Union's Mortgage Center is pleased to provide construction loans to our credit union members. Building a home can be an exciting and rewarding process. However, there are many details to consider and decisions to make. Mortgage Center can help make those decisions. We stand ready to serve as an important resource in building your dream home.

A construction loan is an interim loan designed to allow you to build your home on a draw basis. In simpler terms, the loan is set up similar to an equity line of credit. Mortgage Center may lend up to 80% of the actual acquisition costs (cost of the land plus the cost to build the home) or the appraised value, whichever is less. The difference between the acquisition cost and the loan amount is the equity that you will have in the home. This equity amount will need to be paid to the builder, or paid towards the purchase of the land prior to the disbursement of the first draw.

The construction loan must be closed prior to the beginning of construction. This is a very important statement, as you must be assured that you have the financing in place to begin your project. In addition, there are construction lien laws that could affect our ability to close your loan, if construction has begun prior to our closing the mortgage.

Once the first draw is disbursed, a monthly interest payment will be required to be paid by you on the current outstanding balance until the home is complete. The typical Construction loan term is six months, with a draw schedule of up to 5 draws. Mortgage Center retains the last draw of at least 10% of the mortgage amount to ensure that we receive a Final Certificate of Occupancy, Final Inspection by the Appraiser and a Final Authorization to Disburse Proceeds from the title company. After the home is complete, a permanent mortgage loan will replace the construction loan.

This guide is designed to acquaint you with our program and the information that you will need before securing your mortgage financing and builder.

Obtaining a pre-approval is the first step on your path to building you dream home. Mortgage Center offers construction financing for single family homes that are to be occupied as primary residences. Our loan officers will help you determine the maximum amount of financing for which you qualify or the payment amount with which you will be comfortable once the home is complete. Our programs offer flexibility and competitive rates. In order for Mortgage Center to make a lending decision, your loan officer will take your application over the telephone and request the appropriate supporting financial documentation. Once those items are received by Mortgage Center, your loan request will be analyzed and, if approved, an approval letter will be provided. This letter is very important to you and your builder in order to determine the size of your dream home and the amenities you can afford to include in your contract negotiation. Our loan officers will provide you with the details of our current construction loan programs.

Selecting a Builder

The selection of a builder is one of the most important decision that you will need to make. The building process can take an average of seven months to complete and there is a great deal of communication required between you and your builder. You need to feel comfortable communicating with your builder and trusting that your builder is honest and dependable. We strongly recommend that you obtain and contact references. Mortgage Center cannot recommend a contractor or builder for you. However, we do need to obtain information from the builder you have selected in order to review the experience level, credit history, licensing and references. The builder will need to meet our required Builder Standards. Our acceptance of a builder does not constitute a representation or warranty to you of the Builder's qualifications, licensure, competency, ability, character or reputation.

We will require the following information from your builder:

A copy of the builder's current Builder's License.
A copy of the builder's resume.
A current balance sheet, up-to-date profit and loss statement, and most recent business tax return from the builder.
A Builder Information form, completed by the builder.
An authorization form signed by the builder authorizing Mortgage Center L.C. to obtain a personal and business credit report.
A copy of the signed contract between you and your builder.
A Sworn Statement from your builder listing a complete cost breakdown.
A copy of the blueprint signed by you and the builder.
A copy of the specifications signed by you and your builder.
List of homes under construction.

You may choose to be your own "contractor." As such, you will function as the project manager by obtaining a lot, choosing an architect, obtaining permits, hiring subcontractors, buying materials and supplies, obtaining lien waivers, completing sworn statements, and overseeing the entire project from land excavation to landscaping. As an owner-contractor, you will need experience in project management and scheduling. There are many issues to consider when acting as a self-contractor. You will need to get people to perform the work at the right time and for the right price. You will need a system to track purchases, invoices, paid receipts, scheduling, contracts from subcontractors, liability insurance, and worker's compensation records. There are many books on the market that can assist you in the home building process.

Developing a good cost estimate is key when acting as a "contractor." A good estimate should be within 2-3% of the actual costs. Unexpected costs and upgrades can occur. Obtaining three different bids from suppliers and contractors for each phase of construction can assist you in determining your budget. Maintaining a separate cash reserve account or taking out a home equity loan on your existing home is recommended to cover unexpected costs. Your best defense is to stay within your budget.

There are many frustrations involved with acting as your own "contractor." Bad weather, delivery delays, material shortages, labor disputes, inspection failures and one of the most common mishaps, conflicts in subcontractor scheduling, can all cause delays and cost overruns. Your best strategy is to have alternative plans.

As a "contractor," always have an independent inspector review the subcontractor's work before making payment. Once the money leaves your hand, your negotiating strength weakens. In addition, be sure to have the appropriate lien waivers signed upon payment to contractors or suppliers.

Prior to the construction loan closing -

Builder projects

The following items will need to be provided if a builder is managing the project:

All conditions required in your approval letter.
A copy of the Builder's Risk Insurance and Homeowner's Insurance.
A Sworn Statement provided by the builder to the title company and Mortgage Center L.C. If there is work in process, all appropriate lien waivers must be approved by the title company.
An Appointment of Designee, signed by the purchasers.
A Notice of Commencement provided to the title company for recording, a copy of which must be posted at the site along with blank Notice of Furnishing Forms.
A copy of the building permits.
A Construction Loan Agreement from Mortgage Center L.C., signed by you and the builder.
A survey site map of the property indicating the proposed building site. A foundation survey will be required once the footings/foundation is in place.

Self-build projects

The following items will need to be provided for self-build projects:

All conditions required in your approval letter. Please complete the Initial Budget Cost Breakdown as soon as possible.
A copy of the blueprint signed by you.
A copy of the specifications signed by you.
A copy of the building permits. Please be sure to research municipality
pre-construction requirements as soon as possible.
A copy of the Builder's Risk Insurance and Homeowner's Insurance.
A Sworn Statement provided to the title company and Mortgage Center L.C. If there is work in progress, all appropriate lien waivers must be approved by the title company.
An Appointment of Designee signed by the borrowers.
A Notice of Commencement provided to the title company for recording, a copy of which must be posted at the site along with blank Notice of Furnishing Forms.
A survey site map of the property indicating the proposed building site. A foundation survey will be required once the footings/foundation is in place.
A Sworn Statement from you listing a complete cost breakdown.

The construction loan closing will take place at the title company selected by Mortgage Center. You will be responsible for paying all closing costs, fees and charges due at the initial closing of your construction loan. You will be responsible for the payment of any tax or insurance assessments due. There may be additional costs for services required throughout the construction process that are not collected or paid for at closing. These expenses will be the responsibility of you and/or your contractor. Your first disbursement or "draw" may take place at closing.

Disbursement of each draw will be made once the following procedures have been met:

Your contractor will submit a request for funds for work completed and materials purchased, both to you and to Mortgage Center L.C.
Mortgage Center L.C. will forward a copy of the request to the title company.
The title company will contact the builder and obtain the necessary Waivers of Mechanics or Materialmans Liens. The title company will check the amounts against the initial sworn statements to insure the amount requested is as stated. A Mechanics/Materialmans Lien is a legal means by which a laborer or subcontractor, who has performed work or provided a service or material on your project, is given a lien on the property. This lien is an encumbrance to title and must be satisfied by the contractor signing an Unconditional or Partial Lien Waiver stating that they have been paid for the work performed.
The title company will insure that the waivers are acceptable and forward an authorization to Mortgage Center L.C. indicating their approval to disburse the funds.
Mortgage Center L.C. will send our appraiser to inspect the home to determine the percentage of completion and to confirm that the work for which the builder has requested funds is done.
If everything is satisfactory, the funds will be disbursed. Steps 1-6 will take an average of two business days.

The Draw Schedule

Funds are disbursed from the construction loan at the completion of certain phases of construction, as outlined below. These disbursements will begin after all your equity is in place. Your equity is the amount of money you will have paid toward the purchase of the land, and/or the money you are paying to the builder, if you own the land free and clear. The Draw Schedule will closely resemble the following schedule:

First Draw

Any amount due to pay off the land.

Second Draw - Foundation

Footer, foundation and any other underground work are properly installed in accordance with all plans and specifications.
If a slab foundation, the sub-floor is complete and the appropriate governmental approval is posted on the job site.

Third Draw - Rough In

Exterior framing is complete (floor, wall roof).
Exterior sheeting (walls, roof) is complete.
Interior framing is complete.
Plumbing is roughed.
Wiring is roughed.
Heating ductwork is complete.
Basement floor is poured.
Windows are installed.
Exterior doors are installed with hardware.
Septic/sewer tap is complete.

Fourth Draw - Trim

Roof is complete.
Exterior trim is complete.
Siding/brick is complete.
Wall insulation is complete.
Drywall is complete.
Fireplace is installed.
Cabinets and vanities are installed.
Interior trim is complete.
Interior doors are hung.
Heating unit is installed.
Well/water tap is complete.

Fifth Draw - Final

The rough grading is complete.
Exterior painting is complete.
Interior painting is complete.
Finish plumbing is complete.
Finish electrical is complete.
Ceiling insulation is complete.
All exterior concrete is complete.
Landscape (per commitment) is complete.
All appliances are installed.
All tile work is complete.
All flooring is complete.
A/C compressor is set and charged (per commitment).
House is cleaned and ready for occupancy.
Area is clear of all construction debris.
Driveway is complete.
House is complete according to original plans and specification list. Lender must approve any exceptions.
An occupancy permit has been issued by the appropriate governmental agency.
Final walk through and acceptance by borrower.

Cost overruns and change orders

Be aware that cost overruns are very common in construction projects. Generally, changes to the original plans or changes in materials cause this. The cost of such changes must be carefully reviewed before the expenditure is made. Any additional costs, which are outside the building contract, may not be incurred without the prior written approval of the lender. A written request for the change must be submitted to the lender and must contain the signatures of the borrower(s) and the builder.

The borrower will be responsible for immediate payment of any costs outside the building contract. It is not the policy of Mortgage Center to advance construction loan funds or increase mortgage balances to pay for these items. Therefore, after the change has been approved and the item is installed, or work completed, the borrower must provide satisfactory evidence that any money owed has been paid along with the source of funds used. If such proof is not provided in a timely manner, the processing of any further draws for work or materials will be delayed until the required documentation is received.

Loan payments during the construction phase.

You will receive a monthly billing statement. Your payment will be based on the outstanding balance drawn on your construction loan. The payment will be an interest only payment due on the 15th of the month.

The conversion can be completed by refinancing your construction loan or by selecting the Construction/Permanent loan program at the inception of your construction financing. At the time of conversion, your regular principal and interest payment will be due. If your account will have an escrow for taxes, insurance, and/or private mortgage insurance, that payment will be due as well. Your loan officer will provide you with more information on these options and help you determine which program is right for you.