This is Part 2 of the HSH Construction Loan Primer.

Permanent Loan Application And Documents Needed

A form 1003 residential loan application isn't really more complicated than IRS Form 1040, but by the time you're done, you'll probably discover things about yourself that you never knew before. At least, the sheer amount of information required will make it seem that way. But don't worry, the lender will help you fill it out.

Document List

If you apply for the permanent loan from a separate lender, you'll also need all of the paperwork from the construction loan.

Again, lenders in different areas may have different requirements, and self-employed borrowers will need still more paperwork. Be sure to get a list from your lender.

Construction Loan Documents

You'll need bunches of additional documentation to apply for the construction loan. Your lender will give you a list of what's needed, and it will look something like this:

• Land Contract or Deed
• Land Loan Documents, if any
• Survey (the lender may require proof of the surveyor's licensing)
• Proof of Regulatory Compliance
• Plans and Specifications
• Proof of Insurance (title, homeowner's construction and/or builder's risk)
• Building Permits, as required
• Builder's Contract
• Builder's resume, trade references, asset worksheet, cost breakdown (the builder may be asked to send these directly to the lender)
• A check for the application fee and origination fee

Land Contract or Deed: If you don't already own the land, both you and the lender are going to want a contract before proceeding. Otherwise, you'll need the deed.

Variances or Easements: If any are needed, the lender will want them before granting final approval.

Land Survey: Generally required to be performed by a licensed surveyor, showing the location of the property, dwelling, garage or other buildings, utilities, or rights of way or other easements.

Regulatory Compliance: Both you and the lender will want detailed documentation concerning compliance with zoning laws, flood area regulations, wetlands regulations, enviromental hazardous material regulations, and other government and regulatory agencies, including as applicable:

• Final planning and zoning approval
• Final wetlands approval
• Environmental hazardous materials survey
• Certification of public sewer availability or percolation test
• Certification of public water supply availability or deep hole test and water quality test
• The building permit for the proposed construction
• Compliance or completion bonds, if required

Plans and Specifications: Count on providing the lender with two complete, detailed sets of building and site plans, specifications, cost breakdowns. Generally the lender will keep these for file and not return them to you.

Title Insurance: Where title insurance is required, the lender will probably require a binder from an approved title insurance company. The binder will be replaced with a regular signed policy after closing.

Hazard (Builder's Risk) Insurance: This insurance covers at all times, the full replacement cost of the improvements, regardless of the cause of the loss (the so-called "all risks of physical loss" coverage). Provided by you or by the builder, depending on your contract. This is more comprehensive than the standard homeowner's policy. Nonetheless, you'll also want to arrange overlapping homeowner's coverage near the end of construction.

Flood Insurance: Only needed if you're building in a HUD designated special flood area. Not available everywhere though.

Contractor's Agreement: The contract between you and the builder.

Builder's References: Including all licences, a resume, and trade references

Builder's Cost Breakdown: Usually an exhaustive list covering every anticipated cost item, beginning with the land clearing through framing and utility installations, through final landscaping and painting.

How Your Loan Is Processed

Once you've submitted the application and all of the attendant paperwork, the lender will process your application. This is the rigorous procedure of verifying all of the information you've handed over about yourself. At the same time, your land will be surveyed and appraised, and a title search performed. And, since you're having a home built, the builder will be checked over just as carefully.

The lender must be convinced that you are capable of repaying the mortgage; that you actually own (or are arranging to buy) the land; and that all the appropriate local, state, and federal laws (including environmental regulations) are satisfied. Your application will be dissected, and verifications will be requested; necessary documents must be gathered; scheduling must be set for the appraisals and inspections. There is a lot of work behind the scenes that you don't see, and it's all necessary to get your home built.

This is where your careful attention to detail (and the services of an experienced real-estate attorney) will be vital, since problems can arise which can delay -- or even prevent -- the closing. Being diligent, and cooperating with your lender, can stop this from happening. Since it's likely that the processing will require additional details and/or documents from you, be sure they have your daytime telephone number (and your attorney's as well).

The processing will require two separate credit reports, which should not pose a problem if you've done your own previously. A survey and appraisal will be scheduled, in addition to the necessary environmental testing.