The Loan to Take You from Idea to Finished Project – and Tips on Applying

You’re in the market for a new home but none of them feel quite “right.” Maybe you’ve found the perfect piece of land that’s waiting for a custom-built home. Or, it’s finally time to renovate that back room you’ve been wanting to tackle since you moved in. But where do you start? How do you get the funds to begin?

Auburn Savings offers a Construction to Permanent loan that just very well may be your answer. Here are the steps to get you from idea to finished project.

  • Find a contractor. Having a reputable contractor who can help guide you through the process is invaluable—especially if this is your first construction project. There are many potential pitfalls surrounding ordering material, timing and coordination of subcontractors. A strong general contractor can take those headaches away from you.


  • Trust your contractor. If you have a general floor plan and budget for your project, your contractor can access your plan and help to manage expectations before you get started. They can help to gather a materials list and get estimates for the materials you will need. Most contractors give allotments of money called “allowances” for fixtures such as lighting, kitchen, bathroom, and flooring based on your taste and overall wants typically in line with your budget.


  • Secure financing. Once you have a fairly solid idea of what you want to build and all the projected costs, it’s a good idea to have a conversation with your lender. Items your lender will want are:
  • Contractor’s name and experience
  • All plans, specs and estimated costs
  • Financial documentation including several years of tax returns, bank statements, retirement statements, current mortgage/tax/insurance information

The bank will also expect you to take care of necessary building permits, although some contractors may take care of that for you.


  • Application process. After you apply and are approved for your Construction to Permanent loan at Auburn Savings, an appraisal will be ordered for the “as constructed” project. Based on the appraised value, you may be able to adjust your loan amount. Normally, this is based on keeping your loan amount at 80% or less of the appraised value. The loan moves through the title process and then on to closing. The entire process can take 45 days or so, depending on how busy title companies and appraisers are.


  • Get Started! The construction phase of the loan usually lasts 12 months or less and you are required to pay the interest of the outstanding loan balance each month. As you progress through the project, your contractor needs money to buy materials and pay subcontractors, so you will need to request draws off your construction loan. After a draw is requested, an inspection may be done to ensure your project is progressing in conjunction with the amount of money being drawn off the account.


  • Have a good relationship with your lender. At Auburn Savings, our lenders are here to answer any questions you may have throughout the entire process. Our goal is for a smooth project overall and to keep construction on task. Banks usually do this by “holding back” 10% of the overall funds to help ensure contractors finish the project to completion and so you can obtain an Occupancy Permit from your city or town. When the project is considered complete from the final inspection, the 10% holdback is released ensuring you have a completed project with no outstanding work to be completed. After the 12 months of interest only payments, your loan will automatically roll into the predetermined permanent financing term, typically 15, 20, or 30 years.

If you still have questions or concerns about the construction loan process, contact a lending specialist at Auburn Savings. We’d be happy to speak with you.