A completed-structure mortgage typically takes about thirty days to close. A construction loan can be expected to take half again as long. Here are several tips to help you handle the process while avoiding or gracefully handling delays.
Since there is more risk in the transaction, there is much more due diligence to be taken. The builder must be checked out and the plans thoroughly scoured. The underwriting, at least at our bank, is a fully manual process and the added scrutiny demands more effort and patience on your part.
Here are several tips to help you through this trying phase:
Keep your friends close
Your agent, builder, and loan broker should all be on your speed dial. You should be speaking to each of them at least once a week keeping up to date on the latest developments and making sure you share those developments with the rest of your team. There will certainly be times where nothing happens for a whole week, but it’s important to keep communication going.
In each conversation, make sure you have an answer to each of the following:
- How are things going?
- What can I do to help?
- What are the next steps?
Keep on top of paperwork
If your loan broker is tech savvy, create a Google Drive folder for all of the important documents they’ll request from you. Share the folder with your broker and make sure they can make changes if needed. This way you can get files over to them in real-time without the risks of sending sensitive data through email. If this isn’t an option, at least make sure you transmit your documents securely and keep them organized on your end. Here are some of the collections you’ll end up with:
- Loan approval documentation (bank statements, W-2s, etc)
- Contracts and agreements from the bank
- Contracts, plans, and other documents from the builder
- Documents from your real-estate agent
- Receipts and accounting for expenses pre-paid before your loan closes
This last one is very important because any monies you pay before you loan closes should be deductible from your down payment. For example, you may have paid for architectural plans and made a down payment to your builder. Keep your receipts!
Organization is key because the paper starts flying right away and doesn’t stop until after you’ve moved into your completed home. Loan docs these days will pile up to over a half inch before you even go to closing. By the time the loan is finalized, you will have generated well over an inch of printed material. You will have recurring reports from your builder and your bank as projects progress. You will collect punch lists, manuals, and receipts as elements are completed. Finally, you will be re-insuring the completed structure and refactoring your loan once you get your certificate of occupancy.
Try to get digital copies of everything. Save a copy of every document you e-sign. Get a scanner and make your own digital copies if you are dealing with a paper-centric agent or broker. Store the collection in a secure and replicated location such as Google Drive or Dropbox.
Delays will happen. Paperwork will get lost. Closing dates will get extended. Maybe it won’t happen to you, but you should plan for it and be prepared to approach such problems with a zen mind.
A real estate agent once told me that the best thing to do to make the time pass during this phase is to drink wine. If you’re a cheapskate like me, you might also discover that there are some truly drinkable wines available in 5L boxes for under $15.