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New construction loan

3,385 Views | 26 Replies | Last: 5 yr ago by PFG
Ed Carter
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AG
Wife and I have decided to build a house Never done this before. Sounds like I need to get a new construction loan for the build process Anyone here have anyone they recommend?
SteveBott
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I do not have this loan right now and not happy with employer over this. But there are good mortgage guys here that do.

Jay
Deats
Jja79

Can help.
D713
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It is fairly straight forward if you own the land already. You find a builder / contractor, put the specs together, take it to the bank for approval, and then the construction loan is drawable in multiple stages by the builder as it meets the agreed upon benchmarks set out at signing.

After completion and final inspection, the construction loan becomes a traditional mortgage. I've worked with Prosperity in the past and it was a breeze.

I haven't done straight financing including the land, so not sure how much that complicates the process.
SteveBott
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AG
Typically you need 20% equity in some form. Many own the lot and that will count. If lot value does not give the 20% then you need to add cash to get there.

If you are using a regular bank you are limited to their loan products so choosing the right bank with the right long term loan product is crucial.
Cedar09
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Ed where are you located at?
PFG
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In the middle of this right now.

Opted for a 2 time close. Meaning we closed up front on the construction loan, and will close again at the completion of the house for taking us to perm financing - mortgage.

Pros and cons to each that I can share, along with the professionals here, if interested.
MAS444
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What kind of terms/rate did you get? I'm about to go through this myself and would like to hear about your experience/analysis.
Ed Carter
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In the DFW area
PFG
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MAS -

My construction financing is a a 5% simple interest loan. I pay interest on the draws as we go along. When I was looking for a lender, I found 1 place that had a lower interim rate, but they charged a much higher origination fee. In the end, I went with my local hometown bank. Zero origination fee on the construction loan. And I saw places with as high as 1% on the origination. Thats a pretty big chunk if you're building a custom build in the $180/sq ft range.

Haven't locked in my long term financing yet. For long term, I've got 2 lenders that I'm going to let duel it out as we get close to wrapping up this winter. Even with rate movement, I'm hopeful to be in the mid 4s for 15. This is a jumbo.

Unfortunately I'm a bit limited in the number of lenders who will take me to perm. Our property has a historic family cemetery with a built in visitation easement on the plat. Its not an active cemetery, in the sense that no more people will be buried there. "Newest" headstone is from the late 1800s. And no one has visited in over 40 years, but that visitation easement gives lenders heart palpitations and sweaty palms. It doesn't fit in their nice little financing box. I've given my info to 5 or 6 lenders, and the majority get back to me with "we could probably do it, but you won't like our terms...".

Anyway - if you have a normal piece of property and house, you shouldn't have any issues. My recommendation is to find someone you can use for construction and perm. It cuts down on fees bc every wants to do a front end survey and appraisal - and if you use the same lenders for perm, they might be willing to re-use the survey, cut back on your fees, and save you some dough.
PFG
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Forgot to add - we did 2x close to have flexibility with the length of the build. 1x close had to finish in 12 months. 2x gave us the peace of being able to extend beyond 12 month build time if needed. Looking like we might not have needed that - all this dry weather is moving things along swiftly, and we will probably be done in 10 months total.
MAS444
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AG
Thanks for the detailed breakdown!
The Collective
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If you use a broker, tell them to check out placing the loan with Star Bank of Texas out of Lake Worth. Great process with those folks - real laid back on draw management.
Ed Carter
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PFG, what were your closing costs for the construction loan and the conversion to the traditional loan? I'm curious what's competitive
PFG
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Ed - the fees on my construction close came to 0.61% of my construction loan amount.

I have not gone to perm financing yet. Currently 3 months into construction.
Ed Carter
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Ok. So the traditional loan you will do once construction is complete has yet to be done. So that will be more closing costs at that time....also, you have not locked in your future rate correct?
PFG
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Correct. There will be more closing costs at that time.

However, if I use the same lender, they will re-use the majority of the documents, and the new fees will be minimal.

I have not locked my perm rate. That will happen 30ish days out from wrapping construction.

A 1x close would have allowed me to close my construction and perm financing up front. But also required that we finish building in 12 months. Our project has some hurdles being a rural build, and I didn't want to run into an issue where weather or some unforeseen even is pushing us up against the 12 month deadline.
jja79
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Just for information not all one time close loans require 12 months build. 24 months is available. 5% for a construction loan without origination closed 3 or so months ago seems really high.
PFG
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Good to note on the 24 month options.

5 was the best I could do locally on the interim construction rate. One place offered 4.5 if I was a long term (5+ years) customer. Which I wasn't. But they also wanted 1% origination plus fees. I laughed. That origination is more than I paid in total with the lender I used.

Out of pure curiosity...your interim rate on a jumbo construction?
Deats99
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Contact info in profile if you want to chat.

Thanks Bott
A good plan violently executed now is better than a perfect plan executed next week.
-George S Patton
Braxton.Sherrill
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You'll have an interest only loan on the contrustion amount but you will only pay interest on the amount that has been disbursed to builder.

Another thing to note is if you are bringing cash we will use those funds to pay the builder first so you aren't incuring interest until those are used up.

Typically 6 months out from completetion, we will start looking to lock in the long term rate. Some programs have different lock lengths available.

Programs and availability changes with loan size, qualifications, etc.



MAS444
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Can you give an idea of a current rate for a jumbo construction loan, high credit score and relatively low LTV...50% (if that matters), for example?
PFG
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About 2 weeks ago I was quoted 4.25
MAS444
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thanks!
SteveBott
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On what loan program? Quoting rate without specific loan parameters is not helpful
Braxton.Sherrill
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What Steve said! That 4.25% could've been quoted as a perfect situation conventional with paying points. Not a jumbo construction.

PFG
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Oops. Looked back at my e-mail.

Jumbo perm 4.75 30yr

My mistake.
SteveBott
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That makes sense. That is market more or less.
PFG
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Yeah that's right. Sorry for the confusion.
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