Construction-only loans are typically temporary, interest-only loans for the construction of a dwelling on residential property with final payment due when construction is complete. The borrower must then pay the loan amount in full or convert the construction-only loan into a permanent mortgage loan with the same lender or with a different lender. Encompass supports construction-only loan transactions and construction-to-permanent loan transactions (with blended and separate disclosures). The following blog describe the types of construction loans Encompass supports, the characteristics of these types of loans, and the workflow for each of the supported loan types.
Types of Construction Loans Supported by Encompass:
- Construction-Only Loans:
- These loans finance the initial construction of a dwelling on residential property.
- They are temporary financing covering the construction phase only.
- Borrowers obtain permanent financing from the same or a different lender (take-out lender) after construction completion.
- Encompass supports both fixed-rate and ARM construction-only loans.
Processing Construction-Only Loans:
- Create a single loan file in Encompass.
- Maintain and track construction information in the Construction Management form.
Steps to Create a Construction-Only Loan:
- On your Pipeline, click the New icon.
- Select a construction loan template or choose New Blank Loan.
- Complete borrower, property, and loan information on various loan forms.
- Select Construction for the Purpose of Loan.
- Provide construction phase details, term, and due months.
- Specify construction terms and amortization type (Fixed Rate or ARM).
- Track construction dates, disbursement terms, and vendor information.
- Complete remaining forms and tools per company practices and policies.
- Do not enter interest-only months for construction-only loans.
Selecting Plan Codes for Disclosures:
- Encompass provides default plan codes for construction-only loans.
- Choose Construction Only – Adjustable Rate for ARM loans.
- Select Construction Only – Fixed Rate for fixed-rate loans.
- Construction-to-Permanent Transactions with Blended Disclosures:
- A single transaction that finances initial construction and converts to a permanent loan.
- Blended disclosures provide combined terms for both phases in a single form.
- Includes a blended Loan Estimate and Closing Disclosure.
- Supported scenarios: Fixed-Rate-to-Fixed-Rate and Fixed-Rate-to-ARM.
- Construction-to-Permanent with Separate Disclosures:
- A single transaction that finances construction and converts to a permanent loan.
- Separate disclosures provide distinct terms for both phases.
- Includes two Loan Estimates and Closing Disclosures.
- Supported scenarios: ARM-to-Fixed and ARM-to-ARM.
Note: Encompass supports these loans under all scenarios mentioned above for blended disclosures.
Looking for more information on construction loans in Encompass input forms or need help with implementing any technology solution within Encompass, leave us a message.