Construction Loan Article Center

Tuesday, November 21, 2006

12. Will there be any other costs to consider when building my home?

If you have a fixed price contract, it will take into consideration all materials and labor costs. Still, it is important to read it thoroughly in order to see what is covered and what is not. There are both on-site costs (construction materials and labor) and off-site costs (the paper that leads to construction) to consider. Your contract may only deal with the on-site costs, so make sure you fully consider all the off-site costs such as architect's fees and so forth.

The contract price may not be the only expense you need to worry about. Often, a construction lender will also build a contingency reserve into the loan. A contingency reserve is a specified percentage or dollar amount. The lender, in case of unforeseen circumstances that may negatively impact construction of your home usually requires contingency reserves. The amount required may be based on a percentage of the contract price, on-site costs or loan amount. We recommend that you ask your lender about its policy regarding funds that remain unused after the construction of your home is completed.

Other costs that you may face can include construction loan closing costs and fees as well as insurance requirements. The aforesaid costs can vary so you should discuss them with your lender. But don't worry; we have a Construction-to-Permanent Loan that includes on-site costs, off-site costs, closing costs, interest reserve, contingency reserve and lot purchase or value.

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