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Construction Loans FAQs
Loans & Payments
- If my down payment funds are in a CEFCU account, can they remain there until the builder needs paid?
No, your funds will need to be available the day of closing. Be sure to allow adequate time to access any funds.
- What is the minimum down payment required on a Construction Loan?
CEFCU loans up to 90% on Construction loans, so a minimum of 10% is required for the down payment, subject to Private Mortgage Insurance (PMI) approval. However, a 20% down payment may be required if the construction of the home will not be completed in 12 months.
- Does CEFCU have to approve a change order before I proceed with changes?
If you authorize any extra work or agree to any change in the plans and specifications, the construction contract, or the Adjusted Total Contract Price (other than minor changes involving no extra material cost), you must provide us with a copy of the change order and/or changed plans and specifications and/or construction contract. You may need to provide additional funds so we can be sure there is enough to cover changes.
- I purchased materials before construction started. Do I get reimbursed?
Yes, if a bid received was for the materials purchased then you may be reimbursed. Proof of the purchase would be required as such: a paid receipt or paid invoice and an Owner’s Sworn Statement may be required to be updated.
- What happens if I have cost overruns?
During construction, CEFCU is responsible for making sure you have sufficient funds in your construction escrow account to complete your new home. If you and your builder make changes to the house design, materials used, or other features that add extra cost to the project, these changes have to be paid by you outside the Construction Loan. You can pay for these cost overruns either from your personal savings, or you can contact us about applying for financing options — such as a refinance of your Construction Loan or a Home Equity Loan or Line of Credit, which are subject to approval.
- What happens if the cost of the project exceeds the adjusted total contract price?
If you authorize any extra work or agree to any change in the plans and specifications, the construction contract, or the Adjusted Total Contract Price – other than minor changes involving no extra cost – you will need to:
- Provide CEFCU with a copy of the change order and/or changed plans and specifications and/or construction contract.
- Request that the general contractor reflect the extra work or change in the Contractor’s Verified Statement to be submitted to CEFCU prior to the next disbursement.
- Indicate the dollar amount of the extra work or change in the Extras to Contract, Deductions or Credits, and Adjusted Total Contract Price lines and, if applicable, give the names and addresses of any new parties who will furnish the extra work and the amount to be paid to each or the new Amount of Contract if a previously named contractor or material supplier will perform the work or change.
- Deposit with CEFCU enough additional funds to cover the extra work or change. These funds will be disbursed pursuant to the provisions of the Disbursement Agreement. Also, you can provide CEFCU with receipts to show the extra work or change has been paid for and request that the general contractor reflect the payment in the Amount Paid to Date column of the Contractor’s Verified Statement to be submitted to CEFCU prior to the next disbursement.
- When do I start paying taxes/insurance on the completed property?
Lower property taxes are generally billed on undeveloped property. In many instances, real taxes on a newly built home won't take effect until the home receives a certificate of occupancy from the municipality, until a buyer closes on that home, or until some other local requirement occurs that causes the local taxing body to raise the taxes to the level they should be.
Check with your county assessor’s office or builder to see if he/she knows what your taxes will be. In some areas, developers are required to disclose an estimate of what taxes are expected to be once the home is sold. Your real estate agent is another resource for tax information.
- When do I start making interest-only payments?
An interest-only payment is due the month following the first advance of Construction Loan funds. If a loan disbursement is advanced right after the loan closing (once the mortgage is recorded) to pay off the lot or make a disbursement to the builder, then an interest-only payment will be due the following month.
- I have a Home Equity Line of Credit (HELOC). When will that money be used?
The HELOC will be fully advanced the day of the Construction Loan closing, and the funds will be placed in the construction escrow account. You will incur interest charges on the HELOC balance and your monthly HELOC payment will start within 45 days. The HELOC funds will be disbursed from the construction escrow account along with your funds as the construction project progresses.
- Should I have my lawyer review the loan documents before I sign it?
We encourage you to seek legal counsel; however, CEFCU will not allow any revisions to our loan or construction documents.
- What is the difference between a Completion Loan and a Construction/Permanent Loan?
A Completion Loan allows you to lock your interest rate for up to six months while your home is being built. When you close on your home, the Completion Loan will either pay off the builder or your Construction Loan.
The Construction/Permanent Loan allows you to lock your interest rate and make interest-only payments for up to 12 months. During the construction, disbursements will be made to the builder or title company. After the construction is complete, the Permanent Loan payments will begin for the term you selected.
Appraisals & Inspections
- What documentation do I need to get an appraisal ordered?
To order an appraisal, CEFCU needs:
- A Contractor's Verified Statement (CVS)
- The signed contract between you and your builder
The appraiser needs these documents to see what type of home you are building in order to find comparable properties to establish the value of the completed home. Also, you will need to provide lot information — such as description, size, address, and date of purchase.
- How are inspections handled?
Inspections are done by the original appraiser and ordered by CEFCU at various project milestones. This helps verify the progression of work is reasonably within the percentage of funds disbursed on the project.
- Does CEFCU give notice before inspecting the premises?
Inspections are ordered throughout the construction phase to see the progress of the home. Typically, a home may have three inspections throughout the building process, but there could be more inspections depending on the size of the home or a need to monitor the progress. CEFCU is not required to notify the builder or homeowner of an inspection, but we may need to give notice in order to access the interior of the home.
- What happens if the appraisal does not go well?
If the inspection report indicates the property is not completed as much as anticipated, any additional payouts are suspended until the work completed is reasonably within the percentage of funds disbursed on the project.
- When are funds collected for down payment?
All funds for a down payment are collected at the time of closing. These funds collected will include the purchase of the lot (if not paid off) and total cost to build the home along with any other cost that the member may have. CEFCU will disburse all members' funds before loan funds are used, which saves interest during the construction period.
- How do you determine how long it will take to build the home?
Expected completion date will be discussed by you and your builder. CEFCU offers 12 months to build the home.
- Can I work on the home?
You will need to discuss working on the home with your builder. CEFCU will NOT finance a property where you, as the borrower, do any of the work or labor. This may be reconsidered if the you meet any of the following stipulations, but you need to be sure the exceptions do not cause delays.
- You are employed by a company listed as a subcontractor on the Contractor's Verified Statement (CVS).
- You opt to do paint and trim work or landscaping. However, you still need to provide material bids to be included in the cost-to-build calculation.
- You are a full-time plumber, electrician, or employed in any other skilled labor trade that may be able to run electrical or plumbing in the house; but the general contractor may choose his/her regular subcontractors.
- What happens if I change general contractors during the course of construction?
To cancel the contract of your general contractor, you will need to pursue a legal termination of the contract with the original builder. The builder must acknowledge the termination and provide written documentation that no additional payment is due for work completed. The builder will need to sign a final lien waiver to indicate he/she has been paid in full.
A contract is required with the new general contractor, and the existing Contractor's Verified Statement would need to be updated before Construction Loan disbursements are resumed.
- What happens if I take over as general contractor?
If CEFCU is handling the construction disbursements, you are not allowed to take over as general contractor. You would be required to secure a new general contractor or project manager to complete construction.
- What is a project manager?
The project manager helps coordinate the building by working to arrange the work times of subcontractors and other suppliers needed on the job site. They are not recommended by CEFCU, and they are NOT a contractor.
- Do the contractors I use need to be licensed in the state where I am building?
Licensing varies by state, so make sure to follow your state's guidelines.
General contractors: There is no specific state license for general contractors, but the state leaves the bulk of regulation up to each county or city.
Roofing contractors: The Illinois Department of Professional Regulation regulates roofing contractors.
Plumbing contractors: They are regulated by the Illinois Department of Public Health.
Electrical contractors: There is no state-wide licensing system for electricians, but municipalities regulate them. Requirements vary from town to town with some requiring up to four years of journeyman experience.
The Contractors State License Board (CSLB) license and regulates the state's construction industry.
- Do I have to wait to take occupancy until closing?
You are not allowed to move into the home until CEFCU has received evidence that:
- All work under the construction contract requiring inspection by any governmental authority with jurisdiction has been inspected and approved.
- A certificate of occupancy has been issued.
- All parties performing work or providing materials for the project have been paid, or will be paid, in full for work and/or materials.
- What is a Mechanics Lien?
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