You’re approaching the end of your new construction build and wondering what’s next: how you're granted possession, how long it takes, and what each party needs for you to move into the home.
I explain below what the lender, the county, and your builder need in order for you to move into your new home.
What the lender needs:
1. Certificate of Occupancy (COO)
This is issued by the county. During your build, the county conducts periodic inspections prior to and after major building milestones. Such as, before footers are poured, after septic systems are laid out but before they are covered up, etc. The county completes one last inspection when the build is complete and, if satisfactory, issues the COO.
The COO is the county’s stamp of approval that the house is complete, to code, and ready for occupancy. For us, it was just one page, the county issued it the same day as they inspected, and it was sent to us from the county inspector via email.
Be aware that the county inspector may ask for improvements during their inspection. If they do, then these improvements must be complete in order for them to release the COO.
This is one source of timeline uncertainty. The improvements could take a day or a few weeks, delaying your move in.
2. Proof of homeowner’s insurance
Our lender asked us to show proof that we had the homeowner’s insurance paid in advance a year.
This seems straight forward, but if your homeowner’s insurance renews annually and that renewal period is not around the same time that the building phase ends, you may only have a few months paid ahead. When your homeowner’s insurance renews, it’s not always the same amount as the previous year, so it's not as easy as just paying the same value in advance a year or more. The insurance company doesn’t know what it will cost until closer to that next period.
To make it more complicated, once the 12 month construction phase on our loan ends, the homeowner’s insurance will be escrowed with the payment.
This is really dependent upon the lender and what they want/need. If you get into this situation, it’s best to communicate to the insurance company to understand what they can do and provide, communicate this to the lender, and ultimate get them in touch with each other to agree on a path forward.
3. Final draw on the loan and completion appraisal
If your builder hasn’t withdrawn remaining funds from your loan and there are outstanding invoices from the build, this is the time to draw those remaining funds. Once the final draw on the loan is requested, the lender will schedule what they call a completion appraisal.
This terminology is misleading. It’s not an official appraisal, where they compare your home’s value to others in the area. It’s not that formal. They are just checking to make sure that what you said you were going to build was built.
For instance, if you said you were going to finish the basement, it is finished. If you said you were going to have 4 bathrooms, there are at least 4 bathrooms. Even if you added an extra bathroom, it’s not going to change the original appraisal that was performed prior to closing on the new construction loan or the loan value itself.
This is not the time to get another formal appraisal either. The benefit to appraising a home is if you’re looking to refinance, and that lender will order the new appraisal.
4. Lien waver signed and notarized
The terminology may change from lender-to-lender, but our lender provided a lien waver form that was to be completed by the builder, notarized, and returned to the lender. The form states that the builder has paid all contractors and releases the home to the owners.
This should be a pretty quick and easy activity for the builder to complete, as long as all of their subcontractors have invoiced them. If invoices are delayed, it may delay the completion of this activity.
* All of these items (1-4 above) happen at essentially the same time. They are not dependent upon each other.
What your builder needs:
Your builder will be very involved in the steps listed above: they complete the lien waver form, request the final draw (with your authorization), show the house for the completion appraisal, escort the county inspector and remedy any needed improvements for the COO to be issued.
Once all of these items are complete, the bank releases the final draw to the builder. If there are any overages even after the final draw is released, you work that out with the builder. For us, it was just a matter of writing a check to the builder. Some builders may wait for the check to clear and the final draw amount to be deposited prior to handing over the keys.
Timing:
This entire process took about 2 weeks for us.
With our new construction loan, there was not a formal closing at the end of the construction phase. When applying for new construction loans, look for the phrase “single-close”. This saves on fees, because you don’t have to pay a closing company twice. It also saves time, because you don’t have to schedule a formal closing when build is complete. There’s only one formal closing at the beginning of the loan period.
Disclosures:
*This information is specific to our experience. Every lender, county, and/or builder may be a little different or use different terminology.
*I am not a loan officer or associated with any lending institution.
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