Explain how a construction loan works. I know I would make draws as needed to pay for each sub, but do I make monthly interest payments? Or is the interest just added to the principle and is all paid during closing with permanent financing?

PAIN.



(Sorry, started the process in early May. Still not done. Although looks like good ol SteveBott has it just about done.)

Depends on the bank. Some you make P&I payments from day one on the full amount, others you make interest-only payments on what you have drawn, you can even find some where the interested is rolled into the note along the way. Most banks do #2.

Are you the GC or are you using a builder? You're looking at a two time close?

Most with which I'm familiar charge interest only on the outstanding balance.

There are also one time close loans where the permanent loan is closed when you buy the lot. No more qualifying and without a second set of closing costs.

I have never seen where a bank just adds interest to the loan. They want interest only on the funds you pull until you close out the loan with a permanent one. Also most banks will not let you be the GC.

Isn't negative amortization now a really serious violation?

jj I was not sure so I did not mention that. It's a bank loan so it could have different rules but I believe you are correct.

Slop,

Shoot me an email or give me a call(in profile). Construction is my specialty. With one time close basically being a impossible product right now due to TRID(CFPB will not answer plain questions for us or any bank on TIL, GFE, and HUD issues), you are likely going to be paying interest only on your draws(temporary financing) as you go. Once you are ready to close on your permanent financing it will basically look like a rate and term refinance.

Bitter: You are typically gonna be paying P&I on a one time close product(see above).
Jeff

What do you mean one-time close is nearly impossible? They're not that hard.

The biggest advantage is you're permanent loan is closed from the get go. No more qualifying after the house is complete. You also avoid the 2nd set of closing costs when you go with a construction loan and then a rate and term refi.

Have you seen the guidelines for post TRID for one time close transactions? The CFPB has refused to answer many questions regarding the proper TIL and GFE disclosure methods. They basically have responded to the questions with, "Try it, we will fine you if we think it is wrong, then we will let the courts settle it."
A whole new set of loans never covered before are included in TRID. Has a lot of investors very skittish.

We close about 25 of them a month so yes the guidelines have been reviewed. I guess you're seeing issues our credit and risk committee aren't seeing.

CFPB has no known guidelines , answers to no one and can levy any penalty it sees fit. Once TRID goes into effect, if it ever does, I think a lot of people will be nervous about a lot of newly covered transactions.

We have recently closed on a one-time close construction loan through Amegy -- which I highly recommend. We pay interest only on amount that has been disbursed to the builder -- after the down payment has been all used up.

One time close.
25 yr loan.
3.875%.
80% LTV.
Interest-only for the first year during construction.
Fully amortizing for the next 24 yrs after that.
Can refinance without penalty if you like.
Fixed for the first five years.
1-pt loan origination.

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One time close.
25 yr loan.
3.875%.
80% LTV.
Interest-only for the first year during construction.
Fully amortizing for the next 24 yrs after that.
Can refinance without penalty if you like.
Fixed for the first five years.
1-pt loan origination.

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Our Amegy one-time close is interest only for the construction period up to 2 years. The amortizing period doesn't begin until construction is complete.

In your example of a 5 year Arm (up to 30 year amortization) it's 3.25% with 0 points origination. If the construction period is one year as it is for you the rate fixes for 6 years. The 10 year Arm rate with 0 points is 3.5% (up to 30 year amortization ).

You said you're paying 3.875% with 1 point fixed for 5 years. We're at 2.5% with a point fixed for 5 years.

Jumbo

Same rates from conforming to $5 million.

Building a house in College Station. Just did a one-time close loan in June.

Pay interest only while home is constructed; then it converts to permanent loan for 25 yrs. No points, 4%.

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Explain how a construction loan works. I know I would make draws as needed to pay for each sub, but do I make monthly interest payments? Or is the interest just added to the principle and is all paid during closing with permanent financing?

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We chose to avoid the construction loan based on having to close twice. To avoid it, rather than doing a one time close and paying interest, we found a custom builder that was wiling to purchase the lot for us, so we are just closing at the end like a standard home purchase. Only catch was builder asked for 10% upfront in escrow, rather than their standard $5k.

Don't you imagine you're paying the builder's interim interest plus a profit margin in the price of the home?

Delpierro...

We are looking at doing a one time close as well but had a few questions we wanted to ask from someone who had recently gone through the process. Is there a way to contact you?

We will (hopefully) close ours this week. Fingers crossed.

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Delpierro...

We are looking at doing a one time close as well but had a few questions we wanted to ask from someone who had recently gone through the process. Is there a way to contact you?

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Gladly. My e-mail is hammoudy at gmail. I can provide my phone via email.

Rolling,

I would be happy to answer any questions you have about these. We are not doing "one time close" loans right now due to TRID, but have plenty of experience to answer your questions.

My email and number are in my profile if you are interested.

Jeff

You make it sound as if one-time close violates TRID. I don't believe that's true. TRID isn't even in effect

JJ we have already had this discussion. The problem is the CFPB has taken the position that they feel as though they don't need to explain all of the details. We have some serious concerns as construction loans were not covered before under RESPA, as they are with TRID. As you have already said your compliance team is ok with the risk. We were not. So rather than running ahead full speed, we are simply going to wait for y'all to get fined(for no good reason) and then watch how it plays out in court. Seems simple enough.

Ok boys I'm done

Ol Jock...did you do a one time close?

05 I'm doing his one time close. And yes they are fine now.

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Ol Jock...did you do a one time close?

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Bought the property in March. Hoping to finalize and close a one-time close to consolidate the current note and finance the construction this week.

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05 I'm doing his one time close. And yes they are fine now.

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You better knock on wood sir!!!!

Just knocked three damn times.

Current loans are good. It's the one's that close in the future that are interesting. Don't get me wrong, do I wish we were still actively doing these? YES! Is there a good reason we have put them on hold for a little while? YES! Should there be any issues those of you in process? Not unless your lender screws something up.

So OlJock will be fine!

Demo set for Monday. Fingers crossed!

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JJ we have already had this discussion. The problem is the CFPB has taken the position that they feel as though they don't need to explain all of the details. We have some serious concerns as construction loans were not covered before under RESPA, as they are with TRID. As you have already said your compliance team is ok with the risk. We were not. So rather than running ahead full speed, we are simply going to wait for y'all to get fined(for no good reason) and then watch how it plays out in court. Seems simple enough.

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I'm not sure I understand suggesting a bank is going to be fined under a system that has yet to go into effect. Guess I'm not as clairvoyant as you.


We're doing one-time close and plan to continue to do one-time close. The issue will be compliance with whatever TRID brings with it. It's plan is not to eliminate loan programs that heretofore haven't been covered transactions.