Apply for a construction loan in 6 simple steps
At Viisi we often receive questions from clients interested in purchasing a fixer-upper or a new construction project. How do you apply for a construction loan and what do you need to prepare? We’ve summarised this into 6 simple steps.
You can apply for a construction loan, otherwise referred to as an escrow account, with various lenders. In some situations, you can only apply for an escrow if you are closing on a new mortgage, though these loans are also often extended in addition to existing mortgages. You can view the escrow as an additional component of your mortgage. Invoices related to the construction or renovation of your home are paid from the escrow account.
1. Prepare a construction specification
Start with an estimate of the amount you will require for your planned renovations or additional options (if you are purchasing a new home). This is also referred to as the construction specification or options specification (for new construction). Jot down which works you want to undertake, which materials and services you’ll require and the approximate cost of it all. As buyer, you can prepare this on your own based on quotations from contractors and other specialists.
2. Discuss with your advisor
Viisi’s mortgage advisors are happy to help you work through the options available for an escrow account. They can help you decide which lender is bested suited to your needs and how an escrow account will affect your monthly expenses and investment of own means. This reduces your risks in terms of expenses.
3. Book an appointment with a property appraiser
If your advisor confirms that you qualify for an escrow application, you can contact an appraiser for renovations. Viisi can assist you, we work with several trusted partners who can provide expediated appraisals where necessary. For new construction projects, an appraisal is not usually required but it is best to discuss this with your advisor.
4. Property appraisal
To determine the amount of your renovation to be included in escrow financing, the lender will look at the value of your house after renovation in comparison with the value of your house before renovations. Both values are recorded in the appraisal report.
5. Submit application documents
You can now apply for the escrow account. Based on the appraisal report and the construction specification, the lender of your choice will decide to which extent you can finance the works in an escrow account. In some cases, a quotation for the planned works will be requested. You can upload these documents via MijnViisi; we will ensure that the lender receives them on time.
The works and materials must result in increased property value. In most cases, 70% of the renovations add value to the home (the exact percentage is defined in the appraisal report). This portion can be financed via your mortgage. You must provide the remaining amount from your own means and deposit this into the escrow account. Options in a newly constructed home often provide 100% increase in value.
6. Assessment of your application and opening escrow account
The lender will assess your application based on the documents provided. Within one to ten business days you will be informed whether you have been approved for financing and the amount to be financed via an escrow account. Following approval, the lender will open the account and you will receive a regular overview of the balance and interest paid and received for your escrow.
Keep in mind that the escrow account must be used within a set period (usually two years). Any remaining amount on your escrow account will be deducted from your mortgage.
Request escrow advice
Can Viisi provide assistance in your situation? Book an obligation-free telephone consult with one of our advisors. We are happy to assist with your escrow application and everything along the way!