Wholesale Lending

“All-in-One” Custom Construction This is a true “one-time-close” loan program designed to finance the construction or major remodel of a primary residence or second home. •

This loan includes financing for both the construction and permanent loan in one closing. That means saving your client the expense of dual loan fees and the worry of having to re-qualify for a permanent loan after the home is complete.

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Interest-rate is fixed and secure from beginning to end! Your client can relax and enjoy the security and peace of mind that comes from knowing the permanent interest rate before construction even begins.

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Rely on Washington Federal Savings’ years of experience in construction lending. You and your client can always count on high-quality personal service throughout the entire process.

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No “per-draw” fees. Unlike most lenders, our construction loan includes free monthly draw inspections!

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Option available to lock interest rate up to 90 days, which includes a free automatic float-down of the interest rate! Only ½ point deposit is required, and it’s credited back at closing.

Loan Parameters

Loan Type:

Custom Construction or Major Remodel of an Owner Occupied SFR or Second Home.

Loan Term:

Construction period of 9-12 months, plus term of permanent loan.

Maximum Loan Amount:

Refer to current Wholesale Lending Rate and Fee Schedule located under “Pricing”.

Maximum LTV:

O/O SFR and 2 Plex: •

50% LTV

LTV is based on the Appraised Value or the Total Acquisition Cost whichever is less.

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• • • Major Remodel:

Total Acquisition Cost is defined as the total fixed price construction contract, plus the purchase price of the lot (or appraised value of the lot if owned for 12 months or more), plus borrowers closing costs. If a contingency fund is required by underwriting, it will be added to Total Acquisition Cost for purposes of calculating LTV and funds required to close. Please complete WAFED Form LO260: “All-in-One Custom Construction Loan Worksheet” to determine the LTV correctly.

If an existing house is being remodeled and/or added on to and it has been owned for 12 months or more, the LTV is based strictly off the future Appraised Value (Value after the remodel and/or addition has been completed). If the property has been owned less than 12 months, the LTV is based on the future Appraised Value or the total of initial purchase price of property, plus the fixed price construction contract for the remodel, plus closing costs, whichever is less.

Tear Down and Rebuild:

Regardless of when the property was purchased, if the old house is being completely demolished in order to rebuild a new home, the LTV is required to be calculated using the future Appraised Value or the total of the fixed price construction contract, plus the current site value (only), plus closing costs, whichever is less.

Property Type:

Detached SFR and 2-4 Family • 10 acres or less is required. Case by case more than 10 acres will be considered providing it’s typical for the area. • Texas Only: Primary residences reflecting “A6 status” on title are not eligible.

Interest Rate:

The interest rate is fixed during construction. The same interest rate will apply after completion when loan is automatically converted to permanent financing. Refer to current Wholesale Lending Rate and Fee Schedule located under “Pricing”. 90-day lock-in option is available, which includes a free automatic float-down of the interest rate. (Refer to “Lock in Policies and Procedures” located under General Resources for further details.)

Loan Fee to WAFED:

Add 1% Construction Loan Origination Fee to standard pricing on Wholesale Lending Rate and Fee Schedule. This fee includes all monthly inspections. Options to reduce Loan Fee: Increase rate .125% to reduce fee to .75% Increase rate .250% to reduce fee to .50%

Free Draw Inspections:

No additional costs for monthly draw inspections: • Limit one (1) per month for the original construction term of the loan. • If inspections are being performed outside of WAFED’ lending area as an exception, additional fees may apply and will be determined caseby-case.

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Self-Insurance or MI:

Required on all loans over 80% LTV. WAFED Self-Insurance is available subject to underwriting approval. Refer to “Self-Insurance” Loan Program Description for details.

Building Permit:

Required prior to documents.

Reserves/Impounds:

During the construction period, Borrower(s) must pay all property taxes and insurance premiums. For all loans over 70% LTV, impounds will be required as a condition of loan approval. Impounds can be waived with underwriting approval if LTV is 70% or less. $500 “Escrow Waiver Fee” is required. For all loans with impounds, WAFED will require the initial reserve deposit at time of completion and conversion of the loan to permanent financing (not at closing). At closing, the Borrower(s) will be disclosed an estimate of the reserve deposit that will be required at time of conversion

Prepayment Charge:

“Soft” 4-year prepayment charge of 1% applies. Prepayment charge does not apply if the home is sold or the rate is modified via WAFED Rate Modification program. It does apply if the loan is refinanced or paid off during the first 4 years. In all cases: A 20% principal reduction each consecutive 12-month period will be allowed without triggering the prepayment charge, if applicable. The prepayment charge will be waived to accommodate a one-time principal reduction due to the sale and removal of additional collateral.

Loan Payments to WAFED:

During Construction: Borrower(s) will be billed “interest only” each month based on the total portion of the loan amount that has been disbursed. After the project is 100% complete, the loan will automatically convert to permanent financing at the same interest rate, with monthly principal and interest payments fully amortized over the term of the loan. After Conversion to Permanent Loan: After conversion, the borrower has the option of making their monthly payments manually or via the “E-Z Pay” method (automatic withdrawal from a checking account of Borrower(s) choice). If manual payment option is preferred, payment coupons will be ordered and a $400 Payment Processing Charge will apply.

Tax Registration Service:

Required. WAFED will order.

Flood Certification:

Required. WAFED will order Life of Loan Flood Determination.

Disclosure Requirements: Good Faith Estimate:

Page 1 “Summary of your loan”: Make sure to answer the Prepayment question with a “Yes” and enter 1% of the loan amount as a dollar figure.

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Page 2 #1 – How to show the WAFED Construction Fee of 1%: This origination fee to WAFED is required to be included in #1 “Our Origination Charge” on page 2 of the GFE along with the Underwriting/Doc Prep Fee, Wire Fee, and Payment Processing Fee to WAFED. Page 2 #2 – What box do I check? Check the 1st box in #2 to indicate charge for the interest rate is included in “Our Origination Charge” and enter the interest rate in the blank space provided. WAFED does not offer rebates nd or credits of any kind for the interest rate offered, so the 2 box in #2 should never be checked. If there is a buydown of the interest rate, check box 3; see below for details. Page 2 #2 – Buydowns: If there is a permanent or temporary buy down of the interest rate, on page 2 of the GFE under “Your Adjusted Origination rd Charges”; check the 3 box in #2 and enter the dollar amount for the discount to be paid for the buydown of the interest rate and enter the interest rate in the blank space provided. Remember, do not include the construction charge to WAFED here; only the discount amount. Page 2 #3 – Your Charges for all other Settlement Services: In addition to any services that you, the broker, have selected on page 2 of the GFE #3 you are required to reflect the following services that WAFED has selected. These are services that the borrower(s) cannot shop for: • Tax Service: First American R.E. Tax Service • Flood Certification: First American Flood Data • Appraisal: Enter the name of the appraisal company you have chosen and do not forget to include the cost for the final #442 with photos, which will be performed by the appraiser once house is completed. This gets “lumped” together with the appraisal fee; do not separate.

Truth in Lending:

Refer to the “Wholesale Lending Rate and Fee Schedule” for all charges to WAFED that are indicated to be ‘Prepaid Finance Charges” for purposes of completing the Truth and Lending Disclosure.

Notice to Borrower(s) Regarding Settlement Charges: Customs can often take more than 60 days to close from the date of application with the broker. Because of this lengthy time frame, it can be difficult to quote accurate charges on the GFE. RESPA allows charges on the GFE to change on a construction loan without a changed circumstance PROVIDING the GFE is re-disclosed 60 days prior to the settlement date or later, and as long as the borrowers are given notice within 3 business days of the application date with the broker that this may happen. A notice titled “Important Notice Regarding Settlement Costs for Your Home Construction Loan” has been provided for this purpose at the back of the “Print-Friendly” program description. Your company may have one of its own, which is also acceptable. If this notice is given within the required timeframe, a revised GFE can be provided without a changed 1

Typically this fee is 1%, but there are options for a lower fee in exchange for a higher rate if the borrower chooses. See “Loan Fee to WAFED” under Loan Parameters for details.

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circumstance as long as it’s disclosed 60 days before the settlement date or later. If the GFE is provided 59 days before the settlement date or sooner, a changed circumstance as defined by RESPA is required for that change to be valid and acceptable. What happens if the notice isn’t provided? If the notice regarding settlement charges on a custom construction is not provided within 3 business days of the application date, the GFE cannot be revised at any time without a valid changed circumstance as defined by RESPA.

General Property Requirements: Inspection:

A satisfactory site inspection by WAFED is required prior to loan approval. • The Broker is responsible for requesting the inspection by faxing over a completed WAFED form LO346: “Broker Request for Lot Inspection” (located under “Forms and Worksheets” tab at top of Home Page.). • Be sure to include clear and detailed directions to the site with contact names and phone numbers in order not to delay processing the inspection. • Oregon only: A Listing Kit is also required with the request for inspection. • Please allow a minimum of 5 business days for WAFED to complete the inspection.

Power:

Power must be available at lot boundary.

Water/Well:

Public water must be available at the lot boundary. If public water is not available, a developed well is required on the site prior to documents. Well requirements are as follows: • Only drilled wells will be acceptable (no dug or spring fed wells). • Newly drilled wells will require either a county well certification or a report from a private company dated within 6 months of closing documenting acceptable well flow and water purity. • Existing wells require either a county well certification or a report from a private company dated within 6 months of closing documenting acceptable water purity. • Acceptable well flow is 5 gallons of water per minute for 1 hour or the well must have a 1200 gallon holding tank. • Acceptable water purity test is defined as having no e-coli or coli forms present and nitrates that do not exceed maximum contamination levels. • Oregon: State law requires a well purity test on all purchase transactions. A disinterested third party must collect test water. • If the well is shared, a recorded Joint Maintenance Agreement is required and documentation from the county that the well is legally acceptable to service all associated properties. (Oregon is exempt from JMA due to state law automatically requiring owner’s participation in joint maintenance.)

Sewer/Septic:

Public sewer must be available at lot boundary or, if the property requires a septic system and an approved septic system has not already been installed; an approved Septic Design is required prior to documents.

Access:

There must be ingress and egress to the site via a legal road. A (joint) road maintenance agreement may be required if access is via a privately owned road. (Oregon is exempt from JMA requirement due to state law.)

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Steep Slope:

A property located on a steep slope or a landslide prone area will pose additional building risks to be considered. For this reason, a current Geotechnical Evaluation Report will be required for our review and is typically required as part of the building permit process as well.

Appraisal:

A FNMA 1004 (SFR) or 1025 (2-4 Family) is required. Please instruct the appraiser to include a minimum of three (3) land sale comparables to support the site value.

General Packaging and Documentation Requirements: The following items specific to custom construction and major remodel transactions are required in addition to the normal credit package documentation required on any 1-4 family loan: •

Broker completed WAFED form LO260: “Custom Construction Worksheet” (located under “Forms and Worksheets” tab at top of Home Page.).

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Broker completed WAFED form LO346: “Broker Request for Lot Inspection”. Refer to “General Property Requirements” listed above for details regarding property inspection requirements.

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Fully executed Purchase and Sale Agreement on the lot if purchasing lot simultaneously. If lot was purchased less than 12 months ago, provide copy of final HUD-1 Settlement Statement to document the purchase price.

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Legal Description of subject property.

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A “Fixed-Price Construction Contract” is required. It must be signed and dated by Builder and Borrower and include state sales tax in the Total Price, if applicable. Refer to “Construction Contract Requirements” below for further details.

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“Cost Breakdown” signed and dated by the Builder. Must include Builder’s profit and overhead figure as a separate line-item amount and total amount must match the Fixed-Price Construction Contract amount.

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A “Description of Materials and Specifications” signed and dated by Builder and Borrower.

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Building Plans: Provide one complete set showing foundation plan, floor plan and elevations; signed and dated by Builder and Borrower.

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Site plan as submitted to the county. Must show lot dimensions, setbacks, easements, adjoining roads, location of house, location of garage and, if applicable, location of septic system and well.

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Documentation for any and all “pre-paid” items. Please refer to “How to Document Prepaid Items” for details.

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WAFED form LO271: “Custom Construction Loan Policies and Procedures” signed and dated by the Builder and Borrower(s).

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Include a full and complete Builder Package. See “Builder Package Requirements” below for details.

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The “Building Permit” is required prior to documents. (AZ only: When lot is being purchased simultaneously, building permit is not required prior to closing, but is required prior to first draw.)

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Texas Only: WAFED Form LO339 “Disclosure Statement” signed by Borrower(s) no later than one (1) business day prior to closing.

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Builder Package Requirements: The following information is required from the Builder in order to establish the Builder’s experience level and credit worthiness: • • • • • • • •

Copy of current “General Contractor’s License” and “Insurance Bond” per state requirement. Builder completed WAFED form LO272: “Custom Construction Loan Builder’s Resume” (To access form, click “Forms and Worksheets” tab at top of Home Page.) Current “Personal Financial Statement” signed and dated. (WAFED can provide a form to complete or builder can provide own prepared personal financial statement.) Current Personal Tri-Merge Credit Report(s) from principal(s) of the company. A list of Major Suppliers, Sub-Contractors and References including all contact information. No need to duplicate any information already provided in WAFED form LO272: “Custom Construction Loan Builders Resume”. Signed and dated WAFED form LO173: “Substitute Form W-9”. Proof of a current “General Liability Insurance policy” reflecting a minimum of $1 million per occurrence. (For further details, please refer to “Insurance Requirements”.) Builder to sign and date WAFED form LO271: “Custom Construction Loan Policies and Procedures”.

Construction Contract Requirements: • • • • • •

A “Fixed-Price Construction Contract” is required. This must be signed and dated by the Builder and Borrowers and include state sales tax, if applicable, and builder’s profit and overhead. The total contract price should always match the “Cost Breakdown” total. “Cost Plus”, “Time and Material”, “Supervisory”, “Consultant” or any other estimated price contracts WILL NOT be accepted. “Owner-Builder” transactions WILL NOT be accepted. (Defined as: A Borrower who is not a Builder by occupation who wants to perform as general contractor to build own home.) “Builder-Owner” transactions are accepted case-by-case. (Defined as: An actual Builder by occupation who’s licensed and wants to build his/her own house.) Any figure for “Profit and overhead” is required to be excluded from cost breakdown and will not be included in calculation of total acquisition costs. Allowance items are required to be limited to a total not to exceed 20% of contract price. WAFED will need to satisfactorily review the chosen allowance items and, case-by-case, may require that some items be “fixed” prior to closing. WAFED draw procedures will always take precedence over any draw procedures outlined in the construction contract, if they so conflict. (For details of WAFED draw procedures, please refer to “Draw Requirements” and WAFED Form LO271: “Custom Construction Loan Policies and Procedures”.)

How to document “Pre-Paid” items: Often there are items that the borrowers have paid in advance of closing that they would like credit for in order to reduce their loan amount or funds required to close. Listed below are the documentation requirements for these items:


All requests for pre-paid credit items must be submitted no later than at time of underwriting for final loan approval.

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No credit will be given for any items that are not installed and considered “real property”. For example: No credit will be given for any Appliances, Windows or Kitchen Cabinets paid for in advance, since they would not have been installed yet.




Complete WAFED form LO401: “Items Prepaid on Construction Loan Cost Breakdown”. Please indicate which line-item from the Cost Breakdown has been paid for in advance and provide a copy of the bill and canceled check, (or equivalent).




The Builder must acknowledge all credits to the Borrower. Each credit will be compared to the Cost Breakdown line item. Credit will be allowed for the lesser of the Cost Breakdown line-item amount or the amount of the receipted item.




Any credits after underwriting will be allowed after the loan closes in the form of a draw. Credits taken to escrow by the borrower will NOT be credited at closing.




Any preliminary deposit to the Builder towards the contract price is to be documented by obtaining written verification from the Builder and a copy of the canceled check. Prior to docs, the Builder and Borrower must indicate which item(s) from the Cost Breakdown that it applies to. This deposit amount will then be subtracted from the first draw.




If the pre-paid credit amount is being used to reduce funds required to close, document that the item was paid prior to the date of the VOD’s and/or bank statements, or the amount(s) will be subtracted accordingly from verified funds. A bill/receipt and canceled check are the simplest forms of documentation

Disbursement of Real Estate Commission: Sometimes a builder’s cost breakdown will include sales commission intended for a realtor who found the client for the builder. This happens most often if the lot is being sold by the builder simultaneously. It’s also common for the amount of the sales commission to be based on the value of the finished home rather than on the sales price of the lot, which can often be a sizeable amount. It is WAFED policy not to disburse sales commission at the closing of a custom construction loan unless it’s being deducted from the actual sales price of the lot. WAFED requires all sales commission to be disbursed through the normal monthly draw process based on the percentage of completion; the same way the builder’s profit and overhead is disbursed.

Draw Requirements: General: Draws will be based on the percentage of completion per the approved contract, plans and description of materials; unless a line item disbursement procedure has been specifically agreed upon in writing. Draws will be given no more frequently than once per month and are typically completed between st th the 1 and the 10 . WAFED will not advance any money for items not yet installed. Prior to the disbursement of any draw, a Certificate of Job Progress, signed by both the Builder and the Borrower(s) will be required. Draw checks will be issued payable to the Builder and the Borrower(s) unless WAFED is previously instructed otherwise in writing. The final draw, however, must be made payable to both the Builder and the Borrower(s). Final Draw: Ten percent (10%) of the cost to build will be held back from the final draw until WAFED receives the following: The final Certificate of Occupancy (or Finaled Permit), a satisfactory final inspection from the appraiser as documented by receipt of Form #442 with color pictures, and a final Certificate of Job Progress signed by both the Builder and ALL Borrower(s) stating that construction is 100% complete.

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For Oregon properties only: Draw checks may be issued solely to the Builder, provided a Request for Payment of Bills has been completed and signed by both the Builder and the Borrower(s) and approved by WAFED. The final draw check may also be solely payable to the Builder however, a “Request for Payment of Bills” must be completed and signed by the Builder and ALL Borrower(s) and approved by WAFED.

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For OR, NV and Tucson Division properties only: In addition to the above final draw requirements, a recorded WAFED form: LO289 “Notice of Completion” is also required at time of final draw.

Draw Fees: No cost for monthly draws, limit one (1) per month for the original construction term of the loan. If inspections are being performed outside of WAFED’ lending area as an exception, additional fees may apply; determined case-by-case. Change Orders: All changes to the contract, plans, specifications, and cost breakdown must be authorized by WAFED prior to any alterations. A reduction in the quality of the project will not be allowed. Any request for changes that will increase the cost of the project will be NOT be paid for out from WAFED loan funds. Borrower may be requested to deposit additional funds to the loan account. Payments to WAFED: During construction, the Borrower(s) will be billed each month for “interest only” based on the portion of the loan amount that has been disbursed. Payments are due on the 1st of th every month. A late charge will be assessed if payments are received after the 16 of the month. Draw requests will not be honored if payments to WAFED are not current. After the project is 100% complete, the loan will automatically convert to permanent financing at the same interest rate, with monthly principal and interest payments fully amortized over the term of the loan.

Insurance Requirements: “Liability” and “Course of Construction” insurance serve different purposes. Whereas “Course of Construction” insurance protects the dwelling, “Liability” insurance insures against claims arising from injuries or damage to other people or property (i.e., someone falling off the roof of the house, etc.). The Borrower is required to provide evidence of Hazard Insurance to include the following: • • • • • •

Coverage amount equal to 100% of full replacement value of completed improvements Course of Construction Insurance endorsement (or equivalent) Mortgagee: Washington Federal Savings, it’s successors and/or assigns Name of the insured: Must match Grantor Clause of Deed of Trust. This most typically is the Borrower(s) name. Maximum allowable deductible is 1% of the policy face amount or $1,000, whichever is greater. Reflect WAFED Loan Number.

The Builder is required to provide evidence of “Broad Comprehensive General Liability Insurance” including the following: • • •

Minimum $1 million per occurrence The Declarations (Commonly referred to as a “Dec Sheet”) or Certificate of Insurance must name either WAFED or a state agency where the builder is licensed as certificate holder. Verify that policy is current.

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If the transaction is an “Owner-Builder” exception loan, evidence of Liability Insurance for a minimum $500K per occurrence is acceptable. “Dec sheet” must name WAFED as the mortgagee and reflect the subject property address.

Extending Construction Term: If the house is not completed at least one month prior to the first scheduled payment of principal and interest, a modification must be approved by WAFED that extends the first principal and interest payment date. WAFED may charge an additional fee of 0.50% of the loan amount and/or increase the interest rate if the modification results in: 1.) An extension of more than 2 months; or 2.) Extends the construction phase to greater than 12 months. The modification extending the first payment date will require a slightly higher monthly principal and interest payment as the final maturity date will remain the same.

 The notice provided on Page 11 is required to be given to the borrower(s) within 3 days of the borrower(s) application with the broker. See ‘Disclosure Requirements” for full details.

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Washington Federal Savings Wholesale Lending Department

Important Notice Regarding Settlement Costs for Your Home Construction Loan

This notice is being provided to you because the settlement of your home construction loan is anticipated to occur more than 60 calendar days from the date that you received a Good Faith Estimate of settlement cost associated with your loan. Therefore, settlement costs for your loan may change; and you may be provided with a revised Good Faith Estimate at any time up until 60 calendar days prior to closing of your loan.

Borrower(s) Initial(s) of Acknowledgment:

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Date: _______________

Const NV 12/13/10