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Category: Mortgages

Construction Loans

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How does a construction loan work?
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How does a construction loan work?
MutualBank’s one-time closing for a construction/permanent mortgage loan consists of two phases. The “Construction Loan Phase” includes disbursement of funds based on the progress of the project. Once funds are fully disbursed, the loan is converted to the “Permanent Loan Phase.”
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What do I need to provide to MutualBank concerning the house I want to build?
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What do I need to provide to MutualBank concerning the house I want to build?
Once you have selected a builder and decided what house to build, the next step is to provide the Bank with plans, costs, and specifications as well as the signed contract for the project.
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Once my financing is in place, how are the funds disbursed to the builder?
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Once my financing is in place, how are the funds disbursed to the builder?
You or the builder may request a draw of the construction funds. The Bank’s designated inspector makes an on-site visit to assess the work completed. A report is issued to the Bank stating the percentage of work completed. A draw request form is provided to you stating the amount authorized to be released by the Bank. You review and sign the form and return it to the Bank. Subsequently, the Bank issues a check to the builder.
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Are funds released to a builder or sub-contractor without my consent?
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Are funds released to a builder or sub-contractor without my consent?
In most instances, no. However, the Bank – under certain circumstances – may directly pay bills, statements, or invoices for the cost of material or labor or complete the construction in accordance with the plans and specifications on file without your consent.
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What happens once my house is finished?
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What happens once my house is finished?
The “Permanent Loan Phase” begins the first day of the month following the completion date or the end of the “Construction Loan Phase.” The loan payment converts to a regular principal, interest, tax and insurance payment. Should construction exceed the allotted time frame, provisions are available to extend the “Construction Loan Phase.”
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What if I don’t use all the funds from my loan?
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What if I don’t use all the funds from my loan?
There are a few options available if funds are not fully-utilized for the construction project. Please contact your lender to discuss those options.
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How is my payment calculated during construction and when is it due?
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How is my payment calculated during construction and when is it due?
During the “Construction Loan Phase,” interest accrues daily on funds disbursed in accordance with the Construction Loan Agreement. Interest payments are due on the first day of the month. A billing statement is generated on the last day of the previous month to include all draws made. The statement is mailed within a few days after the bill is generated (technically after the due date). This is considered a REGULAR payment even though it only contains interest. Payments received after the last day of the month due are considered late.
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How will my payment change after my loan converts to the “Permanent Loan Phase?”
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How will my payment change after my loan converts to the “Permanent Loan Phase?”
Your regular principal and interest payments will begin and are due on the first day of each month. Homeowner’s insurance and real estate taxes will be added to the monthly principal and interest payment (private mortgage insurance and flood insurance will also be added, if applicable). You are responsible to obtain homeowner’s insurance with the company of your choice, paying the first year’s premium and providing that information to the Bank. Real estate taxes may or may not be fully-assessed when your loan converts.

The Bank monitors the amount due and will send a letter at conversion to advise of your new payment. BE PREPARED FOR YOUR MONTHLY PAYMENT TO INCREASE SUBSTANTIALLY ONCE YOUR PROPERTY IS FULLY ASSESSED. A billing statement is generated 14 days before the due date and mailed. You may sign up for e-statements once your loan converts to the “Permanent Loan Phase.” If your payment is not received on or before the fifteenth of the month, a late charge is assessed.
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If my house is finished before the construction term is over, can my loan be converted early?
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If my house is finished before the construction term is over, can my loan be converted early?
Yes. If construction is completed before the end of the “Construction Loan Phase,” you may request, in writing, to move to the “Permanent Loan Phase” early.
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If my house isn’t completed by the end of the “Construction Loan Phase;” can this phase be extended?
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If my house isn’t completed by the end of the “Construction Loan Phase;” can this phase be extended?
You may request an extension of the “Construction Loan Phase.” If your request is approved, an extension fee will be charged.
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These questions and answers are provided for general information only and may not be completely accurate in every situation. The information provided is not legally binding on MutualBank or any of its affiliates or subsidiaries. For assistance with specific questions regarding your account(s), please contact us.

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