Section 4.03. General loan policy.

 

(1)   Loan repayment record. The department may not issue a certificate of eligibility to an applicant or approve a loan to an applicant who is delinquent on a loan from the department.

(2)   Construction takeout loan.

(a) A primary loan may be made to replace a loan, the purpose of which was construction of a residence, including garage and the acquisition of land, if the original term of the loan did not exceed 24 months, or if the renegotiated term of the loan does not exceed 24 months and terminates within 24 months of the closing date of the original loan.

(b) Applications for loans on residences where construction has not been completed shall be processed under sub. (4) , except that the contract may have multiple payments to the contractor and escrows are not permitted.

(3)   Construction loans.

(a) Construction loans may be made for a term not exceeding 29 years and 4 months, in addition to the construction period not exceeding 8 months.

(b) The applicant may not act as the applicant's own general contractor. Unless the applicant's occupation is directly related to the task involved, the applicant cannot perform any construction tasks other than painting and staining. The general contractor must warrant all work performed by the applicant.

(c) On construction loans, payment on principal may be waived for up to 8 months. However, payment of interest and 1/12 of the estimated annual taxes and insurance premiums must be made monthly. The interest will be charged on principal actually disbursed during the previous month based on the number of days of usage and billed as of the first of the month.

(d) Construction contracts shall be written on a firm price basis. No cost adjustment clause is permitted. Change orders in construction contracts may be permitted only with the approval of the authorized lender and if the applicant deposits the full cost of the change order with the lender prior to the change taking place.

(e) Construction loan agreements shall be completed on closing of all construction loans.

(f) When required, all building permits, septic adequacy reports and well drilling permits must be obtained prior to the advance of any primary loan funds by the authorized lender. The lender shall retain copies of all permits and tests in the loan file. All percolation tests, when required, shall be completed prior to the approval of the application.

(g) The following documents shall be submitted to the department with every construction loan application:

1. Offer to purchase vacant land or deed showing ownership of vacant land.

2. Construction contract.

3. Signed cost breakdown.

4. Specifications.

5. Building plans.

(h) A basement survey is required in connection with every construction loan before closing. The lender may waive a basement survey under the following circumstances: the lender obtains a certificate from the local building inspector or zoning authority indicating that the proposed basement is located within the bounds of the described property, is in compliance with all applicable side yard and set back requirements and has a proper elevation. The authorized lender shall agree to sign the lender's warranty on the basis of the certificate.

(i) There must be a general contractor who shall warrant in writing against defects in materials and workmanship for a period of not less than one year from the date of completion.

(j) The lender shall approve the builder's qualifications and credit and require evidence that the builder carries or that the applicant will carry builder's risk insurance. The insurance shall be on a standard form 17c or a comparable form and shall include fire and extended coverage, vandalism and collapse coverage. If theft coverage is available, it is recommended that this coverage be carried also. The policy shall name the builder or mortgagor as the insured with a loss payable clause in favor of the mortgagee. The original policy shall be retained by the lender with a memorandum copy to the mortgagor. The mortgagor shall obtain a general liability policy naming the mortgagor as the insured. This policy shall remain in effect until completion of construction.

(k) Authorized lenders shall establish that the builder is creditworthy.

(L) Certificates of satisfactory completion of each stage of construction completed shall be submitted to and retained by the lender, signed by the builder and mortgagor prior to disbursement of any additional funds. Lender or its agent shall inspect completed work prior to any draw and retain a copy of the inspection report on file.

(m) Lien waivers shall be obtained. If any question arises concerning the adequacy of the lien waivers, the waivers shall be cleared through a title company.

(n) All down payment monies received by any of the parties to the construction transaction shall be deposited with the lender. The amounts that are necessary for closing shall be disbursed at closing. Monies not disbursed at closing shall be retained by the lender in an escrow account until the next draw is requested by the builder. No housing loan proceeds may be disbursed until all of the down payment monies have been fully expended. Advances prior to completion may equal 80% of the cost of completed construction unless the cost breakdown shows profit as a separate entry, in which case 100% of the cost of completed construction may be disbursed. Disbursements may not exceed 75% of the total committed primary loan funds until after final inspection. Funds remaining after each and every draw shall be sufficient to complete the construction. Advances shall be made on construction completed, in place, and inspected by the lender or agent using guidelines approved by the department. Advances may take place at any of the following times:

1. Upon purchase of the lot, if not already owned by the mortgagor.

2. Upon completion of the footings and foundation.

3. When the roof is on, the house is enclosed, and all other work is roughed in to include electrical, plumbing, heating and carpentry including windows and doors.

4. After final inspection. Minor items that do not affect livability or work prevented because of weather related circumstances may be incomplete provided the lender establishes an adequate escrow of at least one and one-half times the cost to complete the items.

(o) Landscaping is not required, other than rough grading and backfilling.

(p) Painting of the exterior of the housing accommodation and garage, if not pre-finished, is required. At least one coat of finish on the interior woodwork, kitchen and bathroom walls is required. A finished product, such as hardwood properly sealed, tile or carpeting, is required on all floors. Access walks and driveways must be completed.

(q) In primary loan applications work credits and sweat equity may be allowed only after the applicant evidences that the down payment is unborrowed funds and that the applicant has adequate funds for closing and moving expenses. The primary loan shall be the total cost of the construction minus the down payment. The work credits and sweat equity shall be deducted from the loan principal amount after the construction has been completed. An authorized lender may waive firm price contracts for labor for required painting if all of the following occur:

1. The authorized lender obtains an agreement from the general contractor stating that should painting become necessary, the contractor shall do such painting at no expense to the mortgagor, authorized lender or the department;

2. The contract and supporting documents include a firm price for all painting materials required; and

3. The authorized lender and general contractor agree not to authorize occupancy by the mortgagor until the required painting and other sweat equity tasks are completed.

(r) Plans and specifications for any unusual type of construction shall be submitted to the department prior to loan processing by the lender.

(4)   Purchase loans for a housing accommodation to be constructed.

(a) A purchase loan for a housing accommodation and, if applicable, a garage to be constructed, may be made for a term not exceeding 360 months.

(b) The loan documents shall be submitted to the department as an application for purchase of a completed housing accommodation and, if applicable, a garage.

(c) The housing accommodation and garage shall be fully constructed not more than 8 months from the date of commitment.

(d) A single payment construction contract for a complete, finished, firm price, warranted housing accommodation shall be submitted in all cases, with any of the following:

1. An offer to purchase the land on which the housing accommodation is to be constructed, if the land is owned by the builder or a third party; or

2. A copy of the recorded deed, if the land is owned by the applicant.

(e) Work credit may be agreed to between the applicant and the builder in order to arrive at a reduced sale price or a reduced contract-to-construct price to the applicant, but the amount of the loan applied for shall not include the value of the work credit agreed to so as to result in payment to the applicant for the work credit. No part of the required downpayment can be made up of the value of the work credit. No payment for work credit shall be made to the applicant by either the lender or builder.

(f) The appraisal submitted to the department shall be based upon the value of the property after completion of construction in accordance with the plans and specifications.

(g) Upon completion of construction, the general contractor shall warrant, in writing, against defects in materials and workmanship for a period of not less than one year from the date of completion.

(h) Lien waivers shall be obtained and submitted to the lender upon completion.

(i) The housing accommodation and garage, if applicable, shall be fully completed. Final inspection shall be made by an appropriate inspector prior to closing.

(j) A single disbursement by the department may be made only upon compliance with all of the foregoing requirements. Minor items that do not affect livability or work prevented because of weather related circumstances may be incomplete provided the lender establishes an adequate escrow of at least one and one-half times the cost to complete the items.

(5)   Second applications.

(a) When an applicant for a certificate of eligibility remains obligated to the department on either a secondary loan or another primary loan and the applicant is otherwise qualified for the certificate, a conditional certificate of eligibility shall be prepared authorizing application for a primary loan subject to the requirement that the existing secondary or primary loan be fully paid prior to or at the time of closing of the primary loan.

(b) If an applicant failed to repay a department loan in a timely manner or quitclaimed real estate back to the department in lieu of foreclosure within the 5 years preceding application for a second certificate of eligibility, the applicant is ineligible to receive a second certificate of eligibility or a primary housing loan unless the applicant can establish strong offsetting characteristics. The department may consider whether or not the department incurred a loss as a result of the quitclaim and whether a loss of employment due to no fault of the applicant or other unavoidable circumstances caused the underlying repayment problem.

(6)   Survey. Where the legal description of the property is in metes and bounds, a survey, or copy of a survey, clearly delineating a single perimeter of the entire plot and location of any existing or proposed improvements is required in connection with a primary loan, unless it is determined by the department that there is no dispute as to the location of the improvements within the perimeter. In these cases, a surveyor's or professional engineer's letter is required.

(7)   Floodplain. Life of loan flood certifications are required for loan applications. If the property is in a 100 year floodplain, flood insurance shall be obtained on the property and shall be available at the time of closing. The property is deemed to be in a 100 year floodplain only if the buildings thereon are in the 100 year floodplain.

(8)   Wells and septic systems.

(a) An application for a purchase or construction loan involving property with a well, with a community water supply that is not municipally operated or with private septic disposal system shall include any of the following:

1. A well agreement.

2. A safe water report from a laboratory certified by the state of Wisconsin.

3. Percolation tests for construction loans.

4. Other documentation showing an adequate sewage disposal system.

(b) Housing loans may not be approved for the purchase of or construction of housing accommodations on properties if the septic disposal systems are gas fired or chemical toilets are utilized.

(9)   Separate housing accommodations. The department may not approve a housing loan to an applicant and co-applicant for a duplex or a multiple unit housing accommodation if the applicant and co-applicant are occupying or intend to occupy separate dwelling units, even though both are veterans.

(10)   Term. The amortization period of a housing loan may not exceed 30 years.

(11)   Business use. Except for a housing loan for a purpose designated in s. 45.34 (1) (c) , Stats., the department may not approve a housing loan for a residence, other than a multi-family residence which may be financed under sub. (12) , in which it is reasonably expected that more than 15% of the total area is to be used in a trade or business.

(12)   Multi-family residence. Except for a housing loan for a purpose designated in s. 45.34 (1) (c) , Stats., the department may not approve a housing loan for a multi-family residence unless the housing accommodation has four units or less, the applicant intends to occupy one unit of the housing accommodation and the housing accommodation was first occupied as a residence at least 5 years before the mortgage is executed.

(13)   Prior financing. Except for a housing loan for a purpose designated in s. 45.34 (1) (c) , Stats., the department may not approve a housing loan for an applicant who had a mortgage or any other secured financing on the housing accommodation, while using the housing accommodation as a residence, whether or not paid off, at any time prior to the execution of the mortgage.

History: Cr. Register, May, 2000, No. 533 , eff. 6-1-00; CR 05-008 : am. (2) Register May 2005 No. 593 , eff. 6-1-05.