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Construction Loan FAQs

I’ve got a few questions about my custom construction loan.

Below, you’ll find some helpful information about your Custom Construction loan. Still have questions? Call our Custom Construction lending team at (888) 622-9220 or contact your Loan Officer—they’ll be happy to help.

What are the disbursement schedules and procedures?

Disbursements (draws) on a construction loan are made as the construction of the home progresses. Umpqua Bank will disburse construction funds based on the percentage of work that has been completed per the third-party inspection report. Disbursements for hard-cost expenses must be verified with an inspection and/or invoices (for deposit draws or Bank Contingency) supporting the draw amount requested, along with the required unconditional lien releases. Please note that a copy of the building permit is required prior to the disbursement of any “hard costs”.

What are soft costs and hard costs?

Soft-costs are the line items not directly related to the labor or materials for construction, and include items like plans, architectural fees and permits. Hard-costs are direct costs associated with the labor and materials used for the actual construction of the home. These funds are disbursed based on a percentage of the overall completion of the line item and the project as it relates to the draw schedule.

What do I need to include with each draw request?

Requirements for the draw requests may include, but are not limited to, the following:

  • Completed Draw Request Form signed by the borrower(s) and the general contractor

  • Invoices (for deposit draws or requesting Bank Contingency funds)

  • Unconditional progress lien releases from the general contractor and the subcontractor(s) for payments made on the previous draw

How much can be requested for the initial draw?

An initial draw can be requested for site preparation expenses as itemized on your construction loan budget. We also can disburse funds for upfront expenses such as permits and utility connections upon verification. The typical disbursement turn time is three to five business days from receiving the completed draw request.

Following the draws requesting soft cost line items and site preparation expenses, the foundation draw will typically follow. When requesting the foundation draw, your Disbursement Specialist will order the third-party inspection and request the 102.5 Foundation Endorsement from the title company. If we haven’t already received a copy of the Building Permit, we will request that as well.

How will we know if the draw request is approved?

After we receive the draw request along with all required documentation, we will verify the construction status by ordering an inspection, which is performed within one to three business days from the time we receive the draw request. Once the inspector verifies completion of the noted items, the draw request will be funded and you will receive an email notification to let you know the amount that is to be deposited to the account. Please note that the funds may not be available until the next business day. It is recommended to wait for verification of receipt of funds prior to issuing checks.

Who performs the inspections?

A third-party inspector is contracted on behalf of Umpqua Bank to perform the inspections.

How often can a draw be requested?

Draws are generally limited to one per month. If an exception is needed, please contact your Draw Specialist or another member of our Custom Construction team. Construction draws through your Umpqua Bank Checking Account. If one is not already set up, an Umpqua Bank Checking Account should be opened in your name for the disbursements to be deposited into after the required draw documentation has been received and your request has been approved. Once the disbursement has been made, you will then be able to provide funds to your contractor.

Please Note: You may opt to have the funds disbursed directly to your contractor. To choose this option, please let us know as additional documentation is required.

What are deposits?

Vendors may require a deposit for specialty or custom craftsmanship items. In these instances, Umpqua Bank will release up to 50% of the cost budgeted for the specific line item(s) upon receipt of the invoice requesting the deposit. These items may include, but are not limited to:

  • Custom Cabinets and/or Countertops

  • Custom Window Packages

  • Custom Flooring

  • Custom Doors

  • Custom Fireplace

  • Special Order Appliances

How are change orders processed?

If there are any changes to the original plans and building specifications, a change order signed by both the builder and borrower(s) must be immediately submitted to the Custom Construction team for review. It must include the change in costs to the original contract and identify the specific budget line items that are affected. A change order is still required to be submitted, even if the change represents an upgrade to the original plans and specs.

Umpqua Bank must review and accept all change orders before the work for any changes can begin. The borrower is responsible for any costs resulting from an approved change order that is greater than the original budgeted line item.

What is the Bank Contingency?

The Bank Contingency is money set aside for unforeseen circumstances that may occur during construction. Disbursement of these funds must be approved and authorized by the Custom Construction team. Contingency funds would typically be disbursed in proportion to the completion of the home.

For example, if the home is 50% complete, then 50% of the contingency funds may be available. Please remember that a draw request is required for disbursement of all funds. In addition, proof of the cost overrun such as receipts or paid invoices is required. If there is a balance left in the contingency fund at the end of construction, the borrower may request reimbursement for payment of any upgrades made during construction. Invoices or receipts will be required when requesting money from the contingency fund.

How do I pay my monthly interest payments?

During the construction project, you are required to make monthly interest-only payments on the outstanding principle balance of your loan until construction is complete and either the loan is paid off or it transitions to the permanent phase of the mortgage.

Interest payments are due on the 1st of each month. You will receive a monthly billing statement approximately 10 days prior to the due date. If the interest payment is not received by the 15th of the month, a late charge will be assessed. If you do not receive the statement prior to the due date, please write your loan number on your check and submit your payment at any of our store locations, or mail it to:

Umpqua Bank
P.O. Box 2928
Portland, OR 97208

Please note that any past-due payments will result in the suspension of processing any further draws until all outstanding interest is paid.

I’m interested in converting my construction loan to a permanent loan.

You can find answers to the most frequently asked questions about converting an Umpqua construction loan to a permanent mortgage here.

What title endorsements are required?

In addition to the standard title endorsements required for real-estate loans, Umpqua requires these additional endorsements during the course of construction for your home:

  • A foundation endorsement will be required before we will fund a draw for the foundation. The title company issuing this endorsement may complete a foundation inspection, or they may require an outside company to provide a foundation location survey. This endorsement ensures that your home is being constructed in the proper location on your property.

  • During the construction phase, date-down lien-free endorsements will be requested monthly from the title company.

  • When construction is completed, the final draw will be conditioned upon receipt of an endorsement from the title company that the property has been completed without any recorded liens for work or materials.

What are the insurance requirements during construction?

Borrowers are required to maintain the following insurance during construction:

  • Fire insurance policy that contains a Course of Construction Clause and “All Risk” or “Special Form” coverage. The fire insurance policy must have a minimum amount of coverage to be the lesser of the loan amount or the “total estimated cost new” as listed on the replacement section of the appraisal unless:

    • The policy contains a “guaranteed replacement” endorsement within the dwelling coverage; or

    • The policy includes an “extended replacement” endorsement, which will extend the policy’s dwelling coverage limit to the lesser of the mortgage balance or the “total estimated cost new.”

    • This extension will be in the form of a percentage that will be added to the face value of the policy to reach the total dwelling coverage.

  • Flood insurance certificate or copy of the application with proof of payment if subject property is located in a Special Flood Hazard Area. Please note that all buildings must be separately covered by flood insurance if the property lies in a Special Flood Hazard Area.

  • Insurance premiums for one year are required to be paid and confirmed at closing.

Contractors are required to maintain the following insurance during construction:

  • Workers Compensation Coverage when required.

  • Comprehensive General Liability coverage in a minimum amount of $500,000 for combined single limit, or under split-limit coverage of $300,000/bodily injury, $500,000 per accident and $500,000/property damage.

How do I add taxes and home insurance to my bill?

Once you’ve made your final interest-only payment, you can contact the Mortgage Loan Support Services team to add taxes and home insurance on your mortgage bill.

Contact information:

What if I need to file an insurance claim in order to repair damages to my home?

Umpqua Bank Custom Construction will be happy to assist you. Click here for insurance claim information.

Custom Construction
Give us a call at
(888) 622-9220
Mon-Fri, 8am-5pm Pacific.

For current construction loan customers with questions about disbursements, please contact the Custom Construction team at (888) 622-9220 or contact your Loan Officer—they’ll be happy to help.