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Frequently Asked Questions for Construction Loan in California

Home Construction Loans in the Bay Area
rates as low as 3.5%

Lot Loans in Manhattan Beach
rates as low as 4.5%

What is the best way to financing construction of my home?
There are several ways to finance home construction and each can be the “best” choice depending upon several factors. The three most common are a Home Equity Line of Credit, a “Cash-Out” Refinance and a Home Construction Loan. A Line of Credit often has the very lowest closing costs, but can come with a variable interest rate, making the full cost of the project far more expensive over time. A “cash-out” refinance can also be a good choice in some circumstances, but is always limited to the current amount of equity you have in your home without regard for the cost of construction or future value of your home. The construction-to-permanent loan is by far the most common choice when the project is substantial, adds significant value to the home and the borrower wants or needs a total loan amount greater than the current value of the home or land.

What is a Single Close loan?
For the past 20 years financing the construction of your home meant finding two and in some cases, three loans. Today, the most cost-effective and efficient form of financing can often include all three phases of home construction; lot or home acquisition, the actual construction or remodeling of the home and a permanent mortgage for the next 15 to 30 years. A Single Close or Single Fund loan can save borrowers tens of thousands of dollars. This type of loan also means you get it all done with just one process, property appraisal, loan approval and one set of fees.

How does my builder get paid during construction?
Builders are typically paid through a formal, on-going process of checks and balances know as Fund Control or Draw Management. The process is administered by the lender or a third party vendor. Once a portion or percentage of the work has been completed the builder and/or the homeowner submits a written request to the lender to disburse funds to cover the cost of materials, labors or other services. The request needs to include invoices or itemization of the work completed. It also requires a formal statement that the payee is “releasing lien rights” once the funds have been received. In most states this is called a Lien Waiver. With the draw request and conditional lien waiver received, the lender will send an inspector to the project to ensure the work described has been completed. Once confirmed the lender will issue by check or electronic wire to the builder, borrower, materials suppliers or a combination of all three.

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