We understand the construction-to-permanent financing process can be cumbersome and we are here to help!
Answers to commonly asked questions are provided below. Our role as the construction lender is to provide the funds to build your new home. The contract between the homeowner and builder is between those two parties and therefore we encourage all homeowners to review their builder's contract carefully to ensure allowances, financial responsibility and change order/upgrade details are identified in writting.
How is interest calculated and paid during a construction loan? Interest is charged on disbursed balances, not the whole loan amount. Borrowers are billed on the 1st of every month for interest due on their loans. Interest payments are due by the 10th of each month and become delinquent on the 15th. CFS reserves the right to discontinue disbursement of draw funds if interest payments are delinquent.
What is a draw? A draw is a request to have funds disbursed from your construction loan. Your disbursements are intended to cover specific expenses incurred during the construction of your home. These items correspond to the items listed on your Construction Budget.
How do I request a draw? A Constructon Draw and Disbursement Schedule is included with the Construction Loan documents. Fill out the parts that pertain to the stages of construction that have been completed. Fax or e-mail the completed form to us.
How are disbursements made? Disbursements are made in accordance with the Construction Budget provided at the time your loan was set up. Items for which you are requesting reimbursement can be wired to a bank account which you select or a check can be overnighted to you via FedEx. Checks for disbursement to suppliers and subcontractors can be overnighted to you via FedEx or sent directly to the supplier or subcontractor. It is your choice.
How long does it take to receive a disbursement? Draws that are received in our office by 9:00 A.M. Central time will be processed that same day. Funds will be disbursed the very next business day. Draw requests received after 9:00 A.M. will be processed the following business day.
Are inspections required during construction? Yes, inspections are required for all draw requests that include labor.
Who does the inspections? Inspections are performed by a qualified independent third party contracted on behalf of CFS.
How do I handle deposits required by vendors? Some suppliers require a deposit prior to processing an order for materials. These may include lumber, windows, doors, appliances, cabinets, countertops, lighting, and flooring. CFS will either reimburse you for these deposits upon proof of payment to the supplier, or pay the deposit directly to the supplier upon receipt of a draw request and the invoice pertaining to the deposit requested.
Can I be reimbursed for expenses I have incurred? Yes, expenses which are within the Construction Budget are reimbursable. Proof of payment of the expenses will be required prior to reimbursement.
What if I want to make changes during construction? Making changes during construction can create problems if not handled properly. Major changes to the project must be approved by CFS prior to the change being made. If possible, the changes may be included in the Construction Budget and paid as part of ordinary draw disbursements. In some cases, though, it will be your responsibility to pay for any changes that you make.
When should I inform CFS of changes that I want to make? You should contact CFS immediately after determining a change is desired or required. That will give us an opportunity to determine the best course of action to take in regards to paper work, inspections, draw requests, etc. The sooner you notify us of changes, the smoother your project will go.
What happens if I go over budget? Sticking to the Construction Budget is extremely important. If CFS determines that a draw request is for an amount over a budgeted amount, only the budgeted amount will be paid. It will be up to you to cover the difference, unless other arrangements have been made.
Can I get an extension of my construction loan term? Loans that reach maturity are due and payable on the date of maturity. If the loan goes beyond the due date, all draw requests will be put on hold until an extension has been arranged. You will receive a notice of due date at least 1 week prior to the due date. If construction will not be completed by the loan due date, you must contact CFS immediately to arrange an extension.
What is retainage? Retainage is a 10% holdback of a construction draw. It is an amount retained until the construction loan has been refinanced by the permanent financing.