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hoosierbred

Construction Loan for Southern Indiana build

12 years ago

We are meeting with a loan originator of our local bank this afternoon to discuss scenarios of construction loans. This is our first bank to check out for rates and the first time we've ever done a construction loan. I've read through many threads posted here on construction loans and we want to make sure we ask the appropriate questions.

Background info: We will be using our son-in-law's family construction company for the build. We sent out for preliminary bids for the house and the pole barn in the fall of 2012 to get an idea of what the cost to build might be. We are fine-tuning our house plans and plan to send out final bids after we get a firm offer on our present home which is going on the market in March 2013. We own the new building lot (2-1/2 acres free and clear). I'm retired and my husband is planning on retiring at the end of March 2013. Our financial adviser suggested we meet with a financial institution now to make sure they would approve us with our retirement funding income. We presently live 3 hours north of where we will be building. When we sell our home, we will move down and live with our daughter and her family while we build. Our lot is adjoining to theirs.

Questions:
1. What's a good rate today for construction loans in Southern Indiana?
2. How many banks/credit unions should you check with before making decision? Do you actually fill out all the loan forms to be approved at each one?
3. We are going to ask the rates of construction loans and construction to permanent loans. Are there specific questions to ask about those in addition to fees involved?
4. We are meeting with Old National Bank today. They originated in Southern IN and we presently have our mortgage and checking account with them. Our daughter and her in-laws used German American Bank for their construction loans and mortgages two years ago. I also noticed several people on Gardenweb mentioned Farm Credit Services. Anyone have recommendations from any of these three?
4. How soon should you actually apply for the construction loan? I guess the obvious would be after you get final bids and have a building contract, right?

The loan originator sent us the loan application form along with a list of personal and financial information that was needed for the construction loan. We have filled out the loan application and will bring the other requested construction items with us even though they are not finalized.

Any advice or suggestions would be appreciated. Thank you in advance!

This post was edited by Hoosierbred on Thu, Jan 17, 13 at 7:47

Comments (9)

  • 12 years ago

    HoosierBred,

    I will let you know we just went through this entire process about 2 months ago, but we are located in Central Ohio. We went through First Federal of Lakewood, but I think they only service Ohio. It looks like you are going with local banks which from what we have learned is the best route because they offer the most competative rates!

    Our bank is giving us 1 year to complete our build, we closed on the loan on the 23rd of December. We ended up with a rate of 3.39% and that is during the build and will be our final rate after the home is complete. We wanted to get out of PMI with 10% down so they broke our loan into 2- which is 80/10 thats saving us 300 dollars a month on PMI. With our bank we did have to have a purchase agreement signed and the builder was involved with the financing because they had to have the floor plans and costs and upgrades so they could do a paper appraisal (this was a one time close.) The appraiser actually went to our builders model to see the finishes and the quality of build and our appraisal came in 57k over what we are paying for the home including land.

    Now also what I have found out is many places charge a higher interest rate during the build sometimes 5-6% because you are paying interest only during the build, and then will lock you in at what ever the current rate is at the completion of the home. I do suggest taking a look at many places and finding out how their programs are structured and then once you find one that works best for you then doing the application!

    We did look into farm credit, but their rates were higher thank FFL, and they required 20-30% down with a back end DTI of 36% and with our current car leases we were 3% away from that mark. As well we had 20-30% down but we wanted to set asside a bubble for overages and we are also wanting to put an inground pool in and didn't want to finance that portion because a pool really doesn't add much value, other than pleasure.

    Hope this helps some (sorry I am not in Southern IN)

    -Clayton

  • 12 years ago

    I'm in California, and none of my local banks fund construction loans so I am getting a construction loan through US Bank. Their fees were reasonable, $1000ish origination fee and $4800 construction fund management fee. In addition the rate is 3.125%, and if you prepay insurance and property tax you save .25% bringing your interest down to 2.875%!

    I probably called about 30 banks, some had fees as high was 2 points, plus the construction fees on top of that! Some wanted 30% down and a 10% contingency fund, whereas we are getting away with 20% down.

  • 12 years ago

    I too am in Southern Indiana and very familiar with both banks you mentioned. Both have good reputations in the real estate community. I would be a bit more inclined to go with German American, but that is based upon personal issues. We used to bank with ONB, not by choice, but because our original bank was purchased by ONB. We left ONB for a credit union. ONB started charging us some fees we did not want to pay. I also know a number of people that lost jobs with the merger, so it is personal for me and nothing more.

    If you are looking for a third alternative, I know a very good mortgage broker I've worked with several times personally, and professionally when I worked in real estate. I don't know if they are offering construction loans right now, but they are great people to work with. PM if your're interested.

  • 12 years ago

    Thank you for all your replies!

    rrah, our daughter and her in-laws were pleased with German American and said easy to work with. I understand about ONB. I had an account with them several years ago and got sucked up with $90 fees in 3-month period for a small checking account I wasn't using. I closed that account. Then, 1-1/2 years ago we decided to give them another try when we refinanced our home. If it weren't for a wonderful home loan manager, we may have never gone back. We switched our checking to them and have been extremely happy ever since. I understand about your feelings toward them.

    After today's meeting, I'll probably call German American and see what they can tell me over the phone regarding rates. I'll be a little bit more knowledgeable after today's meeting at ONB. I wasn't sure what you can do long-distance vs face-to-face with construction loans. And, since we are still living 3 hours away wanted to get things in order.

    rrah, I'll PM about the mortgage broker.

  • 12 years ago

    @hoosierbred: I, too, am from Southern Indiana- our town straddles 65. I haven't heard about German American bank, though, so I don't know that we're in the same area. (Although, we have plenty of German heritage in "these here parts", so a bank by that name doesn't surprise me!) :)

    Anyway, here's the info I have:

    Mainsource bank- requires 10% down, 10/1 ARM, currently at 3.5%, one time close

    Jackson Co Bank- 15% down, I think this was a double close loan, but I could be wrong- my memory is fuzzy

    FCS- 20% down, up to a year to build, one time close, rates are a little higher

    These were the only lenders I found who were willing to do construction loans.

    We decided to work with Mainsource. We love our mortgage originator- we've used her each time we bought a house, and she's always great to work with. She also has a special heart for construction, since she's built several houses herself. If you're close by and want her name, please email me.

    With MS, the preapproval is good for 60 days. We didn't have official plans drawn up yet when we went in, because we wanted to make sure we could get a loan for the kind of house we are wanting to build. We got our approval, but the builder we ultimately chose can't start until summer. SO, we'll have to go back and re-apply right before he starts.

    We're using MS for the construction loan, but don't like the 10/1 ARM, so we plan to refinance with Union Savings Bank after the build is complete. They have some of the lowest rates around and their closing costs are only $250. We've used them each time we've refinanced, and couldn't be happier.

    p.s.- the one time close is nice, because the appraisal is done on the front end of the build...we won't get to the end and worry that what we've built won't appraise for what we anticipated. That's one less headache to worry about! :)

    Good luck!

  • 12 years ago

    I'm from Central Indiana, but parents live in Southern Indiana.
    Mom is account manager for MGIC and has been in the mortgage business for 30+ years. If you need help, please let me know and I can put you in touch with her. :)

    We are hopefully building this year, so I've been picking her brain a lot lately too!

  • 12 years ago

    Those are some awesome interets rates. There are a couple banks around that do construction loans but only one that will do a construction loan to an owner-builder without requiring a const manager on staff. We haven't locked yet since we are still a couple months off but the rates are currently 6% - 5% cash down, 15% sweat equity and funds at 80%. Then it will convert to a perm loan at whatever current rates are. Higher initial rate but the flexability of supportin OB and counting sweat equity is huge for us. Good luck

  • 12 years ago

    We had a very good meeting with ONB. If we were to close today we would lock in a 3.5% construction to permanent 30-year loan, 0 points, with 20% down, and one year to complete build. Found out some great information of what is required to be approved on retirement income. We were told that a retired couple was recently turned down for their construction loan because even though they had paperwork saying how much monthly draw they were planning on taking out from their 401K investments, because they actually had not started making the draws, their loan was denied. They said we had to have our income paper trail for a couple months to be approved. We went in with our worse scenario of money to borrow and looks like we meet all criteria of being approved for loan. Yay!!!

    I also called my daughter's contact for German American Bank. They do not offer a one-time closing. They only have construction loans presently at 4.1% with 20% down and at end of build would convert to whatever mortgage rate was at the time. You could pay .05% points to lock in a mortgage rate at the construction loan closing.

    Closing costs were similar for both banks. Both had the same fee for appraiser ($75-100) to inspect build before each draw from construction loan would be approved. ONB noted that in the closing cost estimate and that was explained to us at our meeting. GAB didn't mention it at first until I asked if there was a charge per draw.

    So, we will see how the rates hold while we wait to sell our home. At least we have a plan of action.

    Now, we are fine-tuning the house plans to get everything ready for when the time comes.

    Exciting!

  • 12 years ago

    HoosierB--I can't figure out where/how my pms are located so I've not responded to you. It maybe a setting in my profile. I set it up YEARS ago so really don't know how to change it.

    It sounds like you have a good option. If you still want the contact info for the person I mentioned, let me know here. I'll try to figure it out or maybe another poster can tell me how to find pms.