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The key to arranging the appropriate financing is to be aware of all the costs and options available. Take advantage of the expertise of your HLC mortgage professional to help you find the right mortgage to suit your unique needs and goals.
6 Tips For Successful Financing
You will need to negotiate with the builder on fixed price guarantees and warranty provisions.
Engage a lawyer to draft the contract for the builder and/or sub-contractors before any work begins.
Have a plan ready for the possibility that costs will exceed their budgeted amount. For example:
- Cash Reserve. Maintain a separate cash reserve or take out a home equity line on your existing home.
- Financing Plan. Some lenders may allow a percentage increase of the line for extra costs. But there is a limit to this percentage. Lenders expect the construction plan to remain within costs.
- Change the Building Plan. You may need to redesign your building plan to bring the project down to a more modest design and funding.
- Keep in mind that upgrading on features or altering the plan will increase the cost estimates.
If a lender is doing the financing, have the lender make payments directly to you, or jointly to you and the contractor. This way you can check invoices and review work orders to confirm that you are not being billed twice or for items not part of the project.
Lenders will often inspect the premises prior to release of funds, however they do not inspect for quality. You may want to hire your own inspector to check the quality of work before signing any phase completion form.
Upon final payment:
- Make sure the home has been thoroughly inspected.
- Make sure you have all final releases of the lien and a copy of the final invoice showing that the contract has been paid in full.
- You should maintain a minimum 10-20% retainer at the final draw. This draw is released upon final inspection of the construction. Allow anywhere from 2-4 weeks on the retainer to confirm that everything is in working order.