In talking to a member here it has come to my attention that maybe a one time close with a ARM 10/1 rate may be the way to go. Lock in lower rate now and if it drops significantly anywhere from end of build to the end of 10 years refinance into a permanent loan.

Right now the rates for this are in the 3.75% range vs a construction loan only of 5.5%-7% with a 1% origination fee tied to it....on top of not knowing where rates will be at the end of the build.

Thoughts?

I agree. One time close is better

Bump. I'm also thinking about doing a one time close. What would be the downside?

Also interested in this as my wife and I are currently looking at building in the next six months or so.

Are there options available out there to lock-in an interest rate with the start of the home construction for the life of the loan? I'm getting differing feedback from my current lender and another that I've spoken with.

Does anybody have any first hand experience with the one time close they can share? Which lender you used, how competitive the rates were, etc.

Watching this topic closely.

We are building right now in a surrounding San Antonio area. Using Randolph Brooks Federal Credit Union (RBFCU) one-time close, 3.375%. We pay interest only on outstanding balance throughout construction, I.e. construction started at beginning of November and builder just requested first draw, approximately 20% of contract. We only pay interest on that balance until more draws accrue.

Theres a Spirit said:

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We are building right now in a surrounding San Antonio area. Using Randolph Brooks Federal Credit Union (RBFCU) one-time close, 3.375%. We pay interest only on outstanding balance throughout construction, I.e. construction started at beginning of November and builder just requested first draw, approximately 20% of contract. We only pay interest on that balance until more draws accrue.

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We are looking at RBFCU as well. Our builder isn't familiar with them and is giving me a bit of grief for wanting to use them. Has your experience been positive so far?

So far so good! Very simple process, they let you pick your title company. We chose Alamo Title, really because of convenience to our offices, and they were great. It's our first time building custom and it's been a pretty simple process as far as drawls requests come in, are approved, and funds are deposited into your account for you to then pay via check, cashiers check, etc.

Our builder has a great relationship with RBFCU which is plus and makes the process smoother I think. We did interview with other builders that preferred we use "their" bank, not sure if there is kick back for them or they only qualify with them due to limited history or maybe both.

What's size loan can you get with 3.375%? Jumbo one time close? We are going to build this year and shopping right now lenders.

RBFCU doesn't have a Jumbo classification to my knowledge. Not sure what their max mortgage loan amount would be.

Our builder is still strongly pushing us to use a local bank and do a two time close. Are there any calculators or programs we could use that would show which route would be better financially? We like our builder and we are anxious to get started but this push is leaving a bad taste in my mouth.

Keep in mind he's not taking any of the risks associated with a two time close. That's all on you.

How is the builder taking on any less of a risk than a one time close?

From what I understand, the builder is taking on risk by floating the subs until he gets paid from the next draw in both a one time and two time close.

With a two time close the borrower takes several risks.

What is the rate when the house is complete?
What will the home be worth when it's complete? Let's say it's in Houston and built with $58/bbl oil. When the house is finished let's say oil is $35/bbl. Might the 2nd appraisal be less and require more cash from the borrower?
What if the borrower's job changes, his income is reduced, he's in a lawsuit or something that changes his ability to qualify in the next 12 - 24 months.

Those are risks the borrower takes with a two time close and the builder takes none of those. I was replying to a poster who said his builder was pushing him toward a two time close. I was pointing out things to watch out for in that scenario.

And be wary of a builder who can't carry the subs and materials for 3 or 4 weeks at a time.

I was just curious how it affected the builder's risk rather than banks. It seems the builder carries the same risk in each one, so I can't see why he would be incentivized to mislead you.

From the research I've done, the one time close is the easiest, but will cost you more. The two time close has more risk, but has less fees and you can shop around the mortgage to more banks for competitive rates. I have not seen any one time close rates that are competitive to a traditional mortgage.

One of the biggest advantage to getting a construction loan followed by a traditional mortgage is, as your builder pointed out, being able to use local banks. Not many offer the one time close. You should certainly shop around and do your own research.

Let's say the loan is for $1,000,000 and the house takes 15-18 months to complete.

One time close interest rate is 3.768%.

Construction loan is 5.5%. Who knows what interest rates will be once the house is complete.

Did you find a one time close (OTC) lender offering 15-18 months construction period? I didn't think they would go past 12 months because of the unknown mortgage rate.

You can't really calculate the construction loan interest costs because you don't know exactly when the draws will be issued, but you should talk to your builder to get an idea. With both lending options you're only paying interest on the outstanding balance of the draws.

What rate is the OTC lender offering? It probably is not the same rate as the mortgage portion, but closer to 4.5-6%.

One of the OTC lenders I talked to did a 12 month construction loan followed by the 30 year traditional mortgage. If the house was built in 7 months, I would be stuck only paying interest on the whole construction loan balance for the final 5 months. If I wanted to start the mortgage portion early, I would have to pay a fee to start paying against the principal balance on the mortgage.

When I mentioned risk it was referring to the borrower rather than builder.

Our one time close allows either a 12 or 24 month construction period depending on the cost of construction. Interest only on the construction period equals mortgage rate.

That's good info. That's probably a good deal, especially for a 15-18 month build. Can the mortgage payments towards principal start at month 19 when the house is built to start paying principal?

Loan modifies after the last draw is paid, be that 15, 18 or 24 months.

We used Amegy in Houston. Pretty good experience. They let the construction portion go a little over 18 mos, and no differential of the interest 3%. This was on our original close about 3 years ago or so.

None of the local guys we spoke with were even close, or tried to do anything to get the deal. Overall deal about 2M, but we put down 25% at the top and already owned the property outright

Yeah no one could touch Amegy's 1 time close product. Contact jja79.

I'm using Jed's (Amegy) one time and it is great and easy process. Should close this month.

MAS444 said:

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Yeah no one could touch Amegy's 1 time close product. Contact jja79.

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NM