Understanding the Stages of SAFE’s Construction/Permanent Loans

A construction-permanent mortgage is a three stage mortgage that allows you to finance the construction of your new home. Unlike other types of new construction mortgages, SAFE’s loan allows you to lock your interest rate and close your loan before construction is even started. This is a one-time closing with no need to re-qualify for the permanent phase. 

During Construction, disbursement is made to cover the cost to build, and interest is paid only on the outstanding balance. When construction is complete, the loan converts to a permanent mortgage. At this point, scheduled monthly payments of principle and interest plus escrows, if applicable, will take effect.

Stage 1: Application/Decision

During the application/decision stage, you will work with a Mortgage Loan Originator (MLO) to discuss your loan options. The MLO will guide you through the process from start to finish. He or she will gather the appropri­ate documentation from you and provide you with disclosures to review and sign. You will be notified upon loan decision.

Builder/contractor: Bring your own builder. We recognize this is one of the most important decisions in the home building process and rely on you to select the right builder for your new home. SAFE reserves the right to review the builder and the contract to satisfy our interest in making the construction permanent loan. Our review is not to be considered a recommendation or a representation of that builder’s qualifications or ability to perform under the contract you have signed. Rather our review is completed solely for the benefit of SAFE in further consideration of the loan requirements and willingness to proceed with the loan approval process.

Appraisal. An appraisal will be performed by a licensed real estate appraiser. After reviewing your plans, specifications and property, the appraiser will search for recent sales of comparable homes in your market to determine an estimated value of your home upon completion.

Draw schedule and builder agreements. Loan disbursements will be based on work completed as the home is constructed, and draws will be based on a schedule as agreed between you, your builder and SAFE. The builder will be asked to sign our standard Construction Loan Agreement specifying SAFE Federal Credit Union’s expectations for making funds available during the construction of your new home.

Title review. We will work with your selected closing agent to ensure clear title to your property, which is required for your loan to close. Once we have completed the credit approval and the builder and project review is completed, our underwriter will issue a final approval and the loan will be ready to close.

Stage 2: Building and Disbursement

The building and disbursement stage coincides with the construction of your home and is typically the longest portion of the loan process. Loan funds are disbursed based on the terms of your Construction Loan Agreement and draw schedule.

Prior to each disbursement, SAFE requires an inspection to determine that the work has been completed. Funds will be released for payment (as indicated for that specific draw) only after the inspection.

To order an inspection, you will need to contact your SAFE Mortgage Loan Originator who will arrange for a local inspector to inspect the completed work based on the draw schedule. The inspector does not provide opinions regarding quality of workman­ship, and will only evaluate the percentage of work completed. If you are concerned about quality of workmanship, you can contact a local inspector directly to request a quality inspection or discuss your concerns with the local building inspection department.

You will receive monthly statements beginning the month following your first disbursement. Your statement will include interest accrued on the loan funds disbursed through that statement date.

SAFE’s disbursement policy is as follows:

  • Member funds will be used first, and then SAFE will begin disbursing loan proceeds.
  • Each construction disbursement is limited to the amount that corresponds to the percentage of completion according to the disbursement schedule.
  • Funds are disbursed for labor and material that have been completed or installed.
  • No disbursements are permitted if a lien has been filed against the subject property.

Stage 3: Conversion

Conversion is the final stage of the process. At this point your loan is converted from the construction phase to the permanent phase. Conversion completes the CP loan process. Your mortgage will then be sent to our loan servicing team. You can begin your regular mortgage payments as structured for your permanent loan.

Disclaimer: Terms and Conditions subject to change without notice. Subject to member credit approval. Rate may vary based on individual creditworthiness.