One–Time Close Construction Loan*
At Vectra Bank® we have the knowledge and experience to help you find the right program to build your dream home. Whether it's your first home or your vacation home, we can help make financing your dream a reality.
Our One–Time Construction Permanent program makes the decision to choose Vectra Bank an easy one.
The Construction Permanent Loan provides you benefits unlike any other loan program:
- One–Time Close transaction eliminates the need for multiple loans to finance your new home.
- Variety of loan programs available to fit specific lending needs.
- Save money with one set of closing costs.
- Capped interest rate protection during construction and for the permanent loan.
- Construction phase options of 12 or 24 months allow time for completion of any size project.
- Re-qualification is not necessary.
- Vectra Bank' draw process is simple and straightforward for both the Borrower and the Builder.
- Flexibility to use an inspection schedule that meets the disbursement needs of your project.
- Interest paid during the construction phase may be tax deductible. (Consult your tax advisor.)
Your Vectra Bank Mortgage Banking Officer will present you with a variety of loan programs to fit your unique needs.
Did you know? Construction Permanent is also referred to as: CP, One-Time or OTC.
Selecting a Builder
As the homeowner, you will make a lot of decisions about your new home. Choosing the right builder will help ensure the successful completion of the project and you'll be able to enjoy the experience of building your dream home.
It is the Borrower's sole responsibility to investigate and choose the builder. Vectra Bank's acceptance of your builder is not an endorsement of the builder.
We believe the more informed you are, the more prepared you are to make the right decision for you and your project. Here are a few recommendations when choosing a builder:
- Ensure a builder has the following qualifications and certifications – contractor's license, city or state licenses, proper insurance, a business address, a proven track record, a good reputation and a professional manner.
- Check references – contact homeowners your contractor has worked with to discuss how their projects were handled. Visit 2–3 in–process and recently completed homes for quality and appearance.
- Ask other builders, contractors, and realtors in your area about their opinion of the builder.
- Check on–line resources, including the local Homebuilder's Association, the local Better Business Bureau, and www.contractors-license.org
Vectra Bank requires all builders to go through our review process to determine if our minimum builder standards are met. Acceptance by Vectra Bank is not an endorsement of the builder.
The Application Process
You've probably already spent a lot of time thinking about your dream home. You may have already met with a builder and selected your plans. Your project is starting to come together. Now you are ready to apply for the mortgage that will make all this possible. At Vectra Bank, we will work hard to make the application process easy and convenient for you.
What can I include in my loan amount?
The following project costs may be included in the transaction:
- Contract with builder – for the home and all site improvements
- Contingency Reserve – to cover cost overruns
- Lot purchase or loan payoff – if applicable
- Closing Costs – additional expenses and fees required to obtain financing
What project information will my loan officer need?
Once you have provided to Vectra your "intent to proceed" with the OTC transaction, documentation will be required from you to process your mortgage loan.
- Financial Information – Tax Returns, Bank Statements etc.
- The building contract – signed by all required parties
- Lot Purchase Contract – if applicable
- Final Plans and Specifications
- Proof of Earnest Money Paid – if applicable
- Perc Test – for projects with a septic tank
- Current Survey
Good To Know
Change in Plans
The plans and specifications cannot be changed after they are provided to us, especially after the appraisal has been completed. Changes may affect the value.
Conflict in Terms
In the event of a conflict between the building contract and our terms, we will follow our terms, regardless of whether we address or acknowledge the conflict.
We offer construction phases of either 12 or 24 months to fit different types of projects. It's up to you to select the right amount of time to complete the project.
When building a home, the borrower is responsible to provide certain insurance and to ensure that their builder is sufficiently covered.
Below is a list of standard insurance coverages.
- Builder's Risk Insurance also known as Course of Construction Insurance –
This policy generally covers fire, vandalism, mischief, and theft and can be provided by either the Builder
or the Borrower. It is required during the construction phase.
- Homeowner's Insurance with a Builder's Risk Rider –
This provides coverage for the builder's risk that converts to a standard homeowner's
policy upon completion of the home. It is provided by the Borrower and is required
during the construction phase if separate Builder's Risk insurance policy is not obtained.
- Homeowner's Insurance – Standard homeowner policy is required
at the completion of the home and is provided by the Borrower.
- Flood Insurance – Mandatory on all loans if any part of the
subject property is located in a flood zone. This is required at the initial loan closing
and is provided by the borrower. If the structure is built outside the flood zone, the
borrower may provide information to Federal Emergency Management Agency - FEMA requesting an amendment to the flood map.
- General Liability Insurance – This is a comprehensive policy
that protects against claims of property and personal injuries, especially for parties
not directly associated with project, such as a visitor falling on the job site.
Typically, this is provided by the Builder.
- Worker's Compensation – This is coverage for construction professionals and sub-contractors or others who are working on the property. State guidelines dictate whether this must be provided by the Builder.
Once your loan is approved, you are ready to close. The closing is an important part of the loan process.
Borrower and Builder Attend Closing
The Borrower and the Builder attend the closing to sign the required documentation.
Down Payment Funds
The Borrower has to provide the required down payment funds at closing. All monies required to build the project must be on deposit with Vectra Bank at closing.
Construction Costs Paid at Closing
The borrower may authorize some of the building cost be paid at closing, such as real estate commission and a start-up draw (typically 5%) for initial start–up expense.
With the exception of flood insurance escrows (for properties in a flood zone only), required tax and insurance escrows are not collected at closing. When the loan is ready to convert to the permanent phase, the appropriate amounts for tax and insurance escrows will be collected from the Borrower. Payment of Taxes and Insurance are the responsibility of the Borrower during construction.
If you do not already own your lot, the purchase of your lot can be coordinated at closing.
An acceptable current boundary survey is required.
Work Started Prior to Closing
Please note that it is imperative to the close of your loan transaction, that no construction work or lot grading occur prior to the official loan closing of your OTC mortgage. This also means that no materials or supplies can delivered to construction site until after OTC closing.
The Construction Phase
After loan closing, you will be assigned a Vectra Bank Draw Team who will handle the disbursement of the construction funds.
Depending on the loan amount, the Borrower may have to deposit funds to cover the difference between the loan amount and the cost of construction. The borrower funds will be disbursed first before the loan is funded.
Process for Obtaining a Disbursement
Progress is made on the project.
- The Borrower and Builder submit a Draw Request and required documentation.
- An inspection is performed to determine the progress of the project.
- Funds are disbursed.
Documents needed at the first draw are:
- Builder's risk insurance
- Foundation survey or foundation endorsement required for the permits prior to closing
- Permits, Liability Insurance and additional items may be required
Documents needed at all draws are:
- Draw Request Form signed by the Borrower and the Builder
- Invoices for work completed
General Disbursement Guidelines
- Funds may be released to the Borrower, or the Builder.
- The construction funds must only be used to cover the project costs.
- Vectra Bank is not responsible for ensuring that disbursements are used appropriately by the Borrower and/or the Builder. Misuse of funds by either party may result in a default of the loan.
- Disbursements are made for work in place using an inspection schedule based on the scope and size of the project.
- Typical deposits (e.g. cabinets) may be allowed from time to time.
- The start-up draw and any earnest money will be factored into the progress draws.
- Typical final contingency is 5% of the building funds until the project is 100% complete and all final documentation is provided.
- Vectra Bank may, at its discretion, change the disbursement process, as it deems necessary, at any time.
The Borrower will make monthly interest–only payments based on the outstanding loan funds
All changes in the project must be submitted to Vectra Bank in order to determine the impact the changes may have on the appraised value of the loan terms.
Progress inspections will be performed at each disbursement. The inspections are performed solely for the benefit of Vectra Bank and should not be relied upon by the Borrower or the Builder to ensure quality, craftsmanship, code compliance or adherence with the plans and specifications.
The Borrower will pay a fee at closing that is an estimate of the cost for the progress inspections and one final inspection. Borrower is responsible for inspection fees that exceed the estimated amount collected at closing.
Real Estate Taxes
The Borrower is responsible for paying all Real Estate taxes when they come due and for providing proof of payment.
Improvements Not Included in the Loan
All improvements, whether part of the loan or paid for outside the loan, must be completed prior to the maturity of the construction phase.
Modification of Loan Terms
In the event that the loan requires a modification of loan terms, the Borrower will be responsible for all modification fees, including, but not limited to, modification fee, extension fee, credit report fee, recording fee, and appraisal fee. Other costs may be incurred.
The Borrower's and Builder's Responsibility
Working together to build your dream home and to follow the lender's loan guidelines are both the Borrower's and the Builder's responsibility. We encourage both of you to:
- Visit the job site together on a regular basis.
- Have regular meetings to discuss the project.
- Work to resolve all issues quickly and completely.
- Don't rely on anyone else to protect your interest, including Vectra Bank. If you need assistance, hire the right expert to assist you.
Conversion To The Permanent Phase
Typically, 30 to 45 days before the scheduled conversion from the construction phase to the permanent phase, the Borrower will begin discussions with the Construction Draw Team regarding the requirements for conversion.
In order to convert the loan from the construction phase to the permanent phase, the following conditions must be met.
- The project is 100% complete. Certificate of occupancy required.
- All final draw documents have been provided.
- The borrower remits payment for:
- Final outstanding construction phase interest
- Escrows for taxes and insurance
- Prepaid interest for the permanent phase
- Executing the necessary modification documents.
- Final inspection required.
Permanent Phase Amortization
Our construction loans are term exclusive, which means, the construction phase is not included in the term of the loan. Therefore, the permanent phase (amortization period) is determined by the length of the original amortization of the loan.
Frequently Asked Questions
Can I start my project before loan closing?
No, please do not start the project before loan closing. An early start may hinder our ability to obtain proper title insurance coverage and may prevent us from closing your loan.
Do I have to own my lot prior to closing?
No, you do not have to own the lot prior to loan closing. The lot may be purchased at the closing of the Construction–Perm loan.
What is a start–up draw?
A disbursement of funds at closing to help cover the initial start–up costs of the project, such as permits, fees, site work, etc.
Who are the construction funds released to?
Funds may be released directly to the Borrower, directly to the Builder, or into a joint account for the borrower and builder at Vectra Bank.
How long does it take to get a draw?
Typically, it takes 2-4 days from the receipt of the Draw Request until funds are disbursed.
Who pays for cost overruns during the construction phase?
The Borrower is responsible for paying the overages out of pocket unless the loan has a Contingency Reserve.
During the construction phase, what type of loan payment do I make?
Monthly interest–only payments unless you carry flood insurance, which requires an additional monthly payments for flood insurance premium and escrow.
How is interest calculated during the construction phase?
Interest is based on the outstanding loan funds.
What happens if my project is not completed prior to the maturity of the construction phase?
The construction phase may be extended to allow time to complete the project. The Borrower is responsible for extension fees including, but not limited to, an extension fee, and modification fee. Subject to restrictions.
Glossary of Terms
Acquisition Cost – The total cost of construction including the home, land, closing costs, interest and other construction related items.
Affirmative Title Coverage – Coverage provided by the title company insuring against filed and unfiled liens. This is obtained in situations where the project has started prior to closing and recording of the security instrument.
Borrower's Deposit – The amount of the Borrower's down payment that will be deposited into the construction account to cover the cost of the project
Builder's Risk Insurance – Insurance that covers the project from theft, vandalism, weather, and defects. Usually this is provided by the Builder, but can be provided by the Borrower.
Building Contract – The written agreement between the Borrower and the Builder for the construction of the home and all improvements.
CCR's – Conditions, Covenants and Restrictions – This document is created for a specific subdivision development to ensure that each project adheres to the parameters set for by the developer.
Certificate of Occupancy – A document furnished by a local government indicating the project meets local and state building codes, ordinances, and regulations, and is ready to be occupied.
Change Order – An agreed upon written change in the project between the Borrower and Builder.
Construction Phase – The time period during which the Borrower will make monthly interest only payments based on the outstanding loan funds.
Construction Phase Interest Rate – The rate of interest charged on the outstanding loan funds during the construction contingency phase.
Conversion – The date on which the loan will convert from the construction phase to the permanent phase.
Cost Plus Contract – A building contract that has an estimated cost but allows for the actual expenses related to the completion of the project to be passed onto the homeowner.
Contingency Fund – A reserve of money set aside to cover possible unforeseen future expenses.
Disbursement – The remittance of construction funds to the designated party.
Earnest Money – The funds given to the Builder by the Borrower per the terms of the building contract.
Final Inspection – An inspection performed by the appraiser indicating the project was satisfactorily completed per the plans and specifications.
Fixed Price Contract – A contract that has a fixed price for the building of the home and which has been agreed upon by the Builder. Often times the contract includes allowances for specific items like flooring, cabinets, light fixtures, plumbing fixture and landscaping.
Foundation Endorsement – This is provided by the title company and is an endorsement to the title policy indicating the home is located within the boundaries of the mortgaged property and there are no easements or encroachments present.
Foundation Survey – Provided by a registered land surveyor indicating the location of the structure on the mortgage property.
General Liability Insurance – Insurance obtained by the Builder to protect against certain claims and lawsuits against the Builder alleging that the Builder's negligence has resulted in bodily injury or resultant property damage to a third party. Such claims/lawsuits can arise while construction is ongoing or many years after the home is sold.
Hard Costs – The part of the cost to build that includes labor and materials (i.e. bricks, sheetrock, framing, etc.).
Homebuilder's License – License that is obtained by the builder and requirements vary by state.
Inspection – A visit to the job site by the lender's representative to determine the progress.
Lien – A document filed in the county records claiming that money is owed for work or materials furnished on the property.
Lien Waiver – A document that waives the right to file a lien and is usually provided after payment is made.
Mechanic's Lien – A lien filed against the property by a person who performed labor or provided materials during a project and was not paid.
Modification – Change in loan terms, such as an extension, increase in loan amount or change of interest rate.
Modular Home – A prefabricated structure that is delivered to the job site on the back of a truck and is hoisted onto the foundation with a crane
On Frame Modular Housing – A prefabricated structure that has a steel undercarriage and is transported to the site by a truck.
Owner/Builder – An individual building their own home.
Perc Test – Percolation test. A test performed to determine if the soil conditions are acceptable for a septic tank system.
Permanent Phase – The time period following the construction phase during which the borrower makes payment according to the terms of the Note.
Pre–Sale – A project in which the homeowner has a contract with a builder to build a house.
Site Built Housing – Housing that is constructed entirely on the project site.
Soft Costs – Costs associated with the project other than labor and material costs, such as plans, fees, permits, etc.
Stick Built Housing – A home built on site using traditional wood frame construction.
Sweat Equity – The labor performed by the Borrower or the consideration of labor from the Borrower to the Builder that is used as an equity consideration.
Title Endorsement – Enhancements or updates to the title policy for items (liens, mortgages, exceptions) on the property that would prevent Vectra Bank from having priority on the title.
It’s Fast & Easy
As always, our loan decisions are made locally. This means a faster turn–around time on decisions and ease in getting quick answers to any questions you have during the process.Apply Now
If you need assistance, or if you prefer to apply over the phone, please call our Residential Lending Group at 800–737–6620.
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*One–Time Close Construction Loan: Loans subject to credit approval. Terms and conditions apply. This page is designed to provide general information about the Vectra Bank One-Time Close Construction Permanent Loan Program. The information contained herein should not be considered legal or technical advice. If you need additional information, we recommend that you seek expert advice from a competent professional. This information is subject to change without notice. This is not a commitment by Vectra Bank to make a One–Time Close Construction Permanent Loan.
Vectra Bank Colorado Residential Lending Group NMLS #467014
7800 E. Dorado Pl., Suite 100,
Greenwood Village, CO 80111
Toll Free: (800) 737-6620
Office: (720) 947-7596