SECTION I

PROGRAM OVERVIEW

Available to Borrowers who have an agreement with an "approved" General Contractor/Builder, to build their single family, detached personal residence. Primary or second homes qualify for this program. Individual Borrowers wishing to act, as their own “contractor” are not allowed under this program and no "spec" or interim financing is available.


GENERAL CONTRACTOR/BUILDER

1. The loan is made to the Borrower. This allows the General Contractor/Builder, the ability to reserve their "interim financing lines" at other institutions.
2. The borrower generally does not have to go through the approval process again when the home is completed.

REALTOR

1. The realtor's commission is paid at closing.


BORROWER
1. The construction and permanent loans are closed and ready for funding immediately.
2. The Borrower has the choice of using the PRIME PLUS 1%, the PRIME PLUS 1.5%, or the FIXED RATE options for the construction term of the Loan program. When using the PRIME PLUS 1% or the PRIME PLUS 1.5% options, the Borrower does not have to lock and may choose to float. When using the Fixed Rate option, the Borrower must lock their interest rate for the entire construction period.
3. Borrowers have the option of using an extended lock program and locking in their permanent interest rate for either the PRIME PLUS 1%, the PRIME PLUS 1.5% or FIXED RATE options, for the entire length of the construction period.
4. Borrowers generally need not worry about going through the loan approval process at the time the home is completed. Eliminating concerns of job/career changes or increasing debt.
5. Most fees for the construction portion of the loan and interest paid during the construction periods are tax deductible.
6. The Borrower can finance up to 95% of the value of the home (up to $300,000 - program specifics apply).
7. There is only "one" closing, saving the Borrower costs associated with dual-closing loans.
8. If the Borrower chooses either PRIME PLUS option, they can pay their loan down at the
rollover date to lower their payment or eliminate the Mortgage Insurance requirement.


SECTION II

GENERAL CONTRACTOR/BUILDER APPROVAL
PROCESS

The Mortgage Companies Construction Lending Department will try and ensure that the General Contractor/Builder has the background to perform as required and complete the construction phase of these loans on time and within budget.

In order to accomplish this, the General Contractor/Builder's experience should reflect a history of their ability to complete projects as planned and proper payment to subcontractor and material suppliers.

The General Contractor/Builder needs to complete the "General Contractor/Builders Information and Reference form. This form must be completed entirely, listing all information requested including names, addresses and phone numbers, and social security numbers. The Construction Lender will use this information to accomplish the following:

1. Performance Background:

a. Personal credit check on the President/Owner of General Contractor/Builder;
b. Run a Dun and Bradstreet "Business Information" and "Payment Analysis" reports on the company or corporation the General Contractor/Builder has owned or was a partner in during the past two years;
c. Contact "lender" on two projects completed in the past two years and check for both performance and credit history;
d. Contact the "owner" on two homes completed in the past two years;
e. Contact two "major suppliers" and two "subcontractors" on two projects built within the past two years; and
f. Inquire into reasons for any liens (tax, or subcontractor/supplier liens) and ensure the reason for a lien problem was not for lack of payment for work completed or materials supplied as per contract.

2. General Contractors Present Financial Condition:

a. Year End Financial Statements; and
b. Year to Date Financial Statements.


IF A GENERAL CONTRACTOR/BUILDER REFUSES TO GIVE ALL APPROPRIATE INFORMATION (INCLUDING SOCIAL SECURITY NUMBERS), THEY CANNOT BE QUALIFIED FOR THIS PROGRAM.

THE GENERAL CONTRACTORS/BUILDERS USED IN THESE LOAN PROGRAMS SHOULD HAVE THE CAPABILITY TO USE THEIR LINES AT SUPPLIERS TO CARRY THE PROJECT TO THE APPROPRIATE PERCENTAGES FOR DISBURSEMENT. NO DEPOSITS ARE ALLOWED, AS FUNDS WILL ONLY BE DISBURSED FOR COMPLETED WORK.


SECTION III

CONSTRUCTION UNDERWRITING

The required underwriting of a combination Construction and Permanent Loan differs in that there are two completely separate processes. The permanent underwriting which is completed through the normal underwriting process, and the construction underwriting process, which is completed by the lenders Construction Lending Division.

The items needed to complete the construction underwriting must to be submitted at the same time. Missing items only delay the final approval and effect the turnaround time of Construction Lending Approval. If all items are present, the construction underwriting process will take two working days.

In addition to the standard information and documentation required to process and underwrite a "normal" permanent loan, the Borrower and General Contractor need to provide all items listed on the "Construction Lending Requirements Checklist". All items must be submitted. The Construction Lending underwriter may waive any items that do not apply. The required items are as follows;

1. Soils Report(if applicable);
2. Two Complete sets of "Plans and Specifications" signed by both the Borrower and General Contractor/Builder;
3. Current Lot Survey or Plot Plan;
4. Copy of CC&R's, if the house is being built in a master planned community or PUD;
5. Proof of Land Ownership/Evidence of land acquisition (HUD 1 or purchase contract);
6. Complete legal description/Title Work;
7. Contract between Borrower and General Contractor/Builder;
8. Completed Construction Cost Breakdown;
9. Building Permits (prior to first draw);
10. Appraisal Work;
11. Permanent Loan Approval (showing credit scores), 1008/1003 Loan Application.


The following is a brief explanation of the above-required items.

1. Soils Report: Soils reports need to be reviewed by The Construction Lender for special "footing or foundation requirements". The Construction underwriter may waive soils reports, but if the property is located in an area that has unstable soil, hillsides, rocks etc., a soils report will be required.

2. Plans and Specifications: One complete set of Plans and Specifications signed by both the Borrower and General Contractor/Builder.

3. Current Lot Survey: This sets outs the boundaries of the property, which assists the General Contractor/Builder in building the house within the property lines avoiding construction on any "easements" or property lines.

4. CC&R's: If the proposed home is being built in a Master Planned Community or Planned Unit Development where there is an active set of CC&R's, they will need to be submitted.

5. Proof of Land Ownership/Evidence of Land Acquisition: The settlement statement showing the purchase price needs to be submitted unless the proposed loan is going to payoff the land, then the lot sales contract will be required.

6. Complete Legal Description/Title Work: A copy of the title policy for this loan transaction needs to be submitted.

7. Contract Between the Borrower and General Contractor/Builder: Occasionally, if a loan is not in place, a contract has not been signed. If this is the case, a "proposed contract" will suffice. If the General Contractor/Builder and loan is approved, an actual contract will need to be submitted before loan closing. The actual contract must match the proposed contract. (NO COST PLUS CONTRACTS ARE ALLOWED)

8. Cost Breakdown: All cost breakdowns submitted SHOULD be on the cost breakdown form. This form must be signed by the General Contractor/Builder only. This form needs to be completed as follows:

A. Heading: The Borrower and General Contractor/Builder's names, addresses, telephone numbers, job site address, square footage of the proposed structure and loan number. (The underwriter will assign a loan number to all loans).
B. Section-A-Land Costs: Only include cost of the land if it is part of the contract or a separate contract to purchase.

C. Section-B-Indirect Costs: All costs considered "soft", including but not limited to overhead, G&A, cleanup, insurance etc. These costs are paid on the same percentage of completion as the loan funds are disbursed.

D. Section-C-Offsite Costs: All costs for work completed on the "lot", underground work etc., plus any work required by municipalities or utility companies.

E. Section-D-Onsite/ Building Costs: All costs associated with the actual construction of the house, (sticks and bricks).

F. Signature Block: Only the General Contractor/Builder need sign and date.

9. Building Permits: Actual copies of permits need to be submitted before the first draw.

10. Appraisal Work: A copy of the appraisal that reflects the "as-is" value of the lot and the "completed" value of the proposed S.F.R.


THIS LOAN PROGRAM IS NOT AVAILABLE TO GENERAL CONTRACTOR/BUILDERS ON A "SPEC" BASIS, AND IS NOT AVAILABLE TO BE USED AS INTERIM FINANCING. ONLY "PRE-SOLD" PROPERTIES ARE ELIGIBLE FOR THIS PROGRAM.


The underwriting requirements on 95% LTV's will require the Borrower have 6 months reserves, in order to qualify. The LTV will be based on the "completed" appraised value, or the purchase price, whichever is lower. If the value of the "lot" that the house is to be built upon is to be used as part of the equity requirement, the following applies:

1. Lots owned more than 12 months may use realized value, (if requested), using the value of the land as indicated in the new appraisal.

2. The value of a lot owned less than 12 months will be established by the purchase price or the appraised value, which ever is less. The amount of value of the lot, used to determine LTV will always be the lessor of the above two.

SECTION IV

CONSTRUCTION PHASE

The last "pre-recording" responsibility of the Lender will be to hold a "pre-construction" meeting. This meeting will be held, and needs to include the Borrower, General Contractor/Builder, Mortgage Broker, and the Construction Lending Manager (or designee). As soon as each loan is approved by the Construction Lender, this meeting will be set up via a conference call. The items discussed at this meeting will be disbursement requirements, disbursement procedures, payment time frames, etc. It is also the forum for the Borrower and General Contractor/Builder to discuss any questions, procedures, requirements etc., before loan closing. No loans will close without this conference call.

CONSTRUCTION LOAN FEES AND COSTS

The following is a list of fees and costs that need to be collected at loan closing:

1. Construction Fee
a. Prime Plus 1 ½% $ -0-
b. Prime Plus 1% $ 750.00
c. Fixed Rate 1% of loan amount (minimum $1,000)
2. Inspection Fees $ 350.00
3. Date Down Endorsement $ 350.00
4. Appraisal Recertification $ 100.00
5. Lenders Attorney Fee $ 170.00
6. Modification Fee $ -0-

The above listed costs and fees are in addition to normal costs and fees. The following is an explanation of these fees and costs:

1. Construction Fee: This fee will be charged for all loans and is considered "earned” at loan closing.

2. Inspection Fees: A "deposit" will need to be collected at loan closing, to be disbursed to the inspector that performs the lenders inspections before any disbursement can occur. Inspection costs vary from area and may exceed the amount collected. A reconciliation of inspection fees will be performed at the completion of construction. Any shortage will be billed to the borrower.

3. Date Down Endorsement: A "final" date down endorsement will be required before the final disbursement can occur. This endorsement needs to come from the Title Company that issued the original Title Policy. The cost for this is approximately $100.00 and will be collected at loan closing, and deposited in the lenders "loans in process" account to be disbursed when needed.

4. Appraisal Recertification: An appraisal recertification will be required at the end of the construction period before "rollover" can occur. The cost for this is $100.00 and will be collected at loan closing and deposited into the lenders "loans in process" account to be disbursed when needed.

5. Attorney Fee: This fee is a documentation review/preparation fee for this type of loan. This fee needs to be collected at the time of loan closing.

6. Modification Fee: If a program that requires a "modification" at the rollover is chosen, this modification fee needs to be deposited at loan closing in order to accomplish this at the rollover date. These programs will need a "Modification Agreement" signed between 45 and 15 days prior to the "rollover" date, to establish there permanent rate. If any "paydown" is anticipated on the "rollover" date, this also will be handled with a "Modification Agreement".



RECORDING DRAWS
(Items that are paid at the initial closing)

The only items to be paid at loan closing will be for the following:

1. Land Payoff: If the property on which the structure is being built is not free and clear, the land must be paid off to ensure the construction lenders priority lien.

2. Commissions: Real Estate Fees will be paid at closing. Broker Fees that are charged at closing i.e.: Origination Fee, Discount, Processing Fee will be paid at closing.

3. Soft Costs: Fees that the contractor or borrower may have paid prior to closing i.e.: plans/prints, engineering, soil testing, etc.

Once loan closing has occurred, the Construction Lender will disburse all funds based on a percentage of completion. The draw request will need to be signed by both the Borrower and the General Contractor/Builder, and in turn the disbursement check will be made out to both the Borrower and General Contractor/Builder.

DISBURSEMENT PROCEDURES

Some Construction lenders offer a "Direct Disbursement Schedule". Disbursements will be made either by wire, U.S. Postal Service, or over night delivery.

The following is a brief explanation of the disbursement system:

Direct Disbursement Schedule: Under this system funds are disbursed in a direct proportion of the percentage of work completed on the project. Example: If 10 percent of the work is completed, 10 % of the loan funds can be disbursed after approval from the lenders approved inspector.

All draw requests must be submitted on the lenders draw request form. The proper backup requested must accompany all draw requests. Backup that may be required, but may not always be limited to, is the following:

1. Proof of adequate insurance: All Construction Loan's must be adequately insured, naming the construction lender as "additional insured". The following is the required insurance:

a. Liability: $500,000.00 Minimum
b. Course of Construction "Full Replacement value"
c. Workman's Compensation "Full Coverage"

Proof of the above coverage is required at loan closing and needs to be carried throughout the life of the construction portion of the construction phase of the Loan. If any of the above coverage "lapses" during the construction period, proof of renewal will be required before the next draw request can be funded.

2. All Bills Paid Affidavit: This form needs to be completed properly and submitted with each draw request. Disbursements are to be to the Borrower and General Contractor/Builder and both need to sign the form.

3. Invoices and Lien Releases: If any lien problems arise during the construction portion of the loan, lien releases from the appropriate parties will be required before the next disbursement will be made. In all cases, before the final disbursement will be made the General Contractor/Builder will be required to submit a "General Contractor/Builder's lien waiver Affidavit Upon Final Payment".

DISBURSEMENT FLOW

All disbursements for this program will be made by the lenders Construction Lending Department. The time frame and disbursement flow as follows;

An inspection will be ordered on the day that the draw request is received in the lenders Construction Lending Department. (The submittal can be by FAX.) The draw request will be checked to ensure that the draw request is correct and that all appropriate information has been submitted.

If all required items are in order, the draw request will be paid within three working days. (These three days do not include the day the request is received).

The final inspection will be made when all appropriate parties have given their approvals and the lender has proper lien position protection, and the inspector certifies that the dwelling is built as per original submitted plans and specifications.

CHANGE ORDERS

Both the Borrower and General Contractor/Builder must be cautioned that once the loan has closed, the amount of the loan cannot be increased. Change orders must not occur that increase the cost of the project if the Borrower does not have the funds to pay for these change orders.

All change orders over 5% of the construction portion of the loan, must have prior approval of the Construction Lender.

RETENTION

There is a 10% retainage requirement for nearly all construction Loans. This retention will not be held out of each draw request, but will be retained at the 90% disbursed level of the construction period. When 90% of the construction loan funds have been disbursed, disbursements will cease until the proper documents have been submitted by the Borrower and General Contractor/Builder. These include the following: appropriate title insurance has been issued, and the lenders approved inspector has completed and approved that the house has been built as per the originally submitted plans and specifications.

CONSTRUCTION PHASE AND INTEREST RATE

The construction phase term for all construction Loans will be at a minimum of six (6) months and a maximum of twelve (12) months. This term shall be determined between the Borrower, the General Contractor/Builder and the lenders Construction Lending Manager.

Interest for the construction portion of the Loan will be based on the available programs/rates at the time of loan submission.

Interest statements will be sent out on the 1st of every month based on the principal outstanding balance at that time. All payments will be collected and administered by the lenders Construction Lending Department.

If the LTV allows, an interest reserve account may be established by the Borrower from loan funds. Monthly interest payments will be deducted automatically out of this account at the first of each month.


SECTION V

ROLLOVER STAGE

If the Borrower chooses a program, which requires a “modification”, the borrower must set their permanent rate between 45 and 15 days prior to the scheduled rollover date. Business West Mortgage Inc. and the borrower will need to work this out, and the borrower must sign the "modification agreement". The selected Title Company must then record this modification agreement.

If the Borrower chooses to make an additional paydown of the loan balance, this is the time for that to happen.