Friday, January 22, 2010

Construction Loans ~ We are Lending!

Just like any product, construction loans have their good, bad, and ugly. Here is some information to assist you in keeping away from the bad and the ugly ones…...

Know your options. In today’s market, the options for construction financing have been greatly reduced from years past. Today's construction loan choices include some banks that will offer a construction loan and construction finance companies that are independent. Some of your options will depend if you have selected a builder or if you will be spear-heading the build yourself and hiring your own subcontractors.

Get pre-approved for a loan. This will help to determine if the requested loan amount is within your budget. It will also allow you to find out what the monthly land or mortgage payment is going to be, and to make sure you qualify before you run out and buy land. This pre-approval will be required by the lender whether you or the builder is financing the building costs. Anyone willing to grant you the construction financing is going to want to be absolutely certain the house will be financed into one of the traditional choices of permanent financing options once it is complete. Neither the builder nor the lender wants the house at completion!

Realize that construction loans are most often loans that will need explaining. The lender will want to know exactly what it is you are trying to accomplish. They will want the costs, plans, and any ideas you might bring to the table and how you intend to accomplish it then they can recommend a program and approve your loan.

Factor in contingency funds into the cost of building your new home. Contingency funds are added to the loan amount just in case you need more money to build your new home. With all good intentions, construction loans tend to have cost overruns. Typically, 5% to 10% of the cost breakdown is added to the loan amount just in case you have cost over runs or need better appliances. If you don’t need or use this extra contingency fund then it will not be added to your mortgage upon completion of your new home.

Make sure the construction lender is experienced. Local banks, if they do construction loans, might be able to offer you a great rate. National Lenders are more likely to have construction programs, but the drawback is that they do not necessarily have their fingers on the pulse of the local Real Estate market. But your first consideration should be construction lending experience. Even more than a mortgage loan, a construction loan can be complicated. Avoid using any entity that provides you with a loan officer who doesn't have significant experience providing construction loans to consumers. Simply asking ‘how long have you been doing construction loans?’ is a good start.

Enter into a written contract with a builder/contractor (if you aren’t acting as your own General Contractor). Items typically required of a builder are their financials, both personal and entity, prior years taxes, building license, good standing with the Secretary of State, Liability Insurance information and some others. A cost statement breaking down each line item of the build will be a must. A construction contract is a written agreement between the borrower and the builder for services to be provided by the builder for a stated consideration. A properly written and customary contract contains:

A clear statement outlining the responsibilities each party will perform.
The date of the contract, the scheduled dates for commencement and completion of construction of the project.

The amount of payment the builder is to receive for each stage of construction, as well as under what conditions it will be received, such as passing inspection etc. If the property is located in a state that charges sales tax, the contract must specify whether the amount includes state sales tax.

A completed and signed line item cost breakdown and list of materials.

A payment method that is compatible with the line item cost breakdown and the disbursement procedures of the lender.
Provisions for possible changes to plans or specifications by appropriate change orders. Since most construction loans have a contingency provision a cost over run may be paid for using that provision.

Full identification of all parties and definition of all names used in the contract (contractor, owner, subcontractors and architect).

Architect's responsibility, if any.

Signatures of the borrower and contractor.

Get construction insurance. Banks will require two types of insurance, builder’s risk and general liability. This requirement is set forth by the bank, not the builder. So make sure you hire a reputable builder with insurance, it will help your construction loan close much faster and smoother.

Builder’s Risk: This policy is an all risk policy to include, fire, extended coverage, builder's risk, replacement cost, vandalism and malicious mischief insurance coverage.

General Liability Insurance: You or your builder can provide this policy. This policy is a comprehensive general policy or a broad form liability endorsement. The minimum amount of $300,000 for each occurrence is required. If the builder provides the insurance a general policy of $1,000,000 or a broad form liability endorsement is required. Ask your builder upfront if they have general liability insurance. If they do not, ask if they have a problem providing the insurance. Some builders cannot afford or simply do not want to pay for the insurance and then guess who has to provide it, yes, you do. You can save yourself a lot of headaches and money if you work with a builder that has insurance.

As you can see, building a house has a few steps to consider. If you would like assistance with building your own home, have a builder build your home, or already have a builder in mind, give us a call. We can help with construction financing options. Our number is 763-784-3400 and speak with one of our loan officers or preview our website at for more information.

Certificate of Rent Paid and 1098 Form

Certificate of Rent Paid (CRP)

By January 31, 2010 landlords should have sent out the Minnesota Certificate of Rent Paid to their tenants. The MN Certificate of Rent Paid provides the tenant the form and breakdown of rent paid which they can use to obtain their rent credit when they do their taxes. This is commonly known in Minnesota as the renters refund.

A Minnesota Certificate of Rent Paid should be sent to each married couple and unmarried person living at the house, townhouse or apartment. Each individual should receive their own Certificate of Rent Paid with only their name on it. In the case of a married couple, they count as one individual. So if you have one married couple and two single persons living at your residence, a total of three Certificate of Rent Paid Forms should be sent.
Regardless of who is paying the rent, the landlord must divide the total yearly rent received by the number of individuals equally. The landlord divides the total yearly rent received by the number of Certificate of Rent Paid forms they are sending to the tenants. It may be that one tenant paid more than another or they may have even paid most of the rent. This does not matter. The instructions on the 2009 Certificate of Rent Paid MN form states that the rent stated on the CRP must be divided equally regardless of what was actually paid.

1098 Form

A form filed with the Internal Revenue Service (IRS) that details the amount of interest and mortgage-related expenses paid on a mortgage during the tax year. This form is for contract for deed holders as well. These expenses can be used as deductions on a U.S. income tax form Schedule A which reduces taxable income and the overall amount owed to the IRS. The mortgage lender is required by the IRS to provide this form to borrowers.

If you need any assistance with this or are a tenant/buyer of one of our properties or one of our builder's properties, give us a call at 763-784-3400 or visit our website at

Friday, January 15, 2010

How to Find a Builder

If you are in the market to build a home, but don't know where to start-read on. Deciding to build a home is a big decision. Choosing the right builder is vital to your experience as they are the focal point for the entire process through completion, assuring quality throughout. There are many ways to find a builder. Quality builders take great pride in their work. They do things right the first time to avoid the expense of repairs later. Most of all, they value satisfied customers.

There are several ways to seek out a new builder.

One is to call us. We are a construction finance lender that for 10+ years has offered financing to the builders in our area. We service and fund the construction project from the time the lot is purchased through the time you close on your completed home. We have many bulders we can pair you up with so you will have several options for builders to choose between.

There are several typical methods to locate a builder. A great way is referrals from friends and family that have experienced working with a good builder. You can visit model homes and new housing developments to see the work of various builders.

Once you have narrowed down a few builders, calling the local Better Business Bureau, (BBB) and check the record of complaints filed against the builder is always a good idea. Determine the rating received by the BBB and refrain from selecting a builder with multiple complaints.

Check the reputation of the builder. Even with a home warranty, complaints are resolved directly with the builder, so the builder's willingness to make repairs is far more important than the warranty.

Look for builders that have been in business for many years and under their same name.

Contact the local and National Association of Home Builders. Membership is a good indication of quality of work, and offers some assurance of the builder's standing in the profession.

Please call on us for assistance locating a builder. We have a portfolio of many builders we have worked with over the years and would love to assist you. Our website is or call 763-784-3400 and speak with any of our loan officers.

Thursday, January 14, 2010

Carbon Monoxide and Your Home

It is that time of year to be especially careful about carbon monoxide poisoning. Each year in the US, approximately 20,000 people go the emergency room for carbon monoxide poisoning and nearly 500 people die from it. It is a colorless, odorless gas which is extremely poisonous and can kill you in minutes. Symptoms include feeling dizzy, tremendous headache and nausea, and extreme sleepiness.

The number one cause of carbon monoxide poisoning in the US is danger from poorly-maintained heating systems. Make sure that your appliances and heating devices are property vented and maintained by a professional. Another cause (in the colder states, in particular) is running your car in the garage to heat it up, which should not be done even with the garage door open. Park your car in the driveway, well away from home. In addition, if one loses power, do not use your oven to heat the home and use a back-up generator carefully. It should be placed outdoors.

Most importantly, all homes should have C.M. detectors. There should be one near every room where people sleep at night. Make sure it is battery operated or at least has a battery back-up in case of power failure.

Carbon monoxide makes people sick, it kills people and is completely preventable.

We can assist you with building a home, obtaining a loan for either construction or the final purchase of a home. Give us a call at 763-784-3400 or visit our website at for more information.