carrying a construction loan

16 years ago

When we first spoke to our builder, he said he preferred to carry the construction loan which was fine with us. Now, though, he said his bank prefers that the customer carry it (although he's pretty sure he could still get one--he's still doing well in the industry).

Which is the best scenario for us? We would want one with only 1 closing as our relocation package does cover some closing costs, so we want to take advantage of that, etc.

Is there more cost associated with having the construction loan ourselves?

I would naturally want to make the choice of the one that benefits us most in the end. I already have financing approved through our relo company's suggested lender (Wells Fargo)--I guess I could base their figures (closing costs, mortgage only though) against those of a local bank. Perhaps the bank handling the subdivision's financing would be more likely to make a better deal in order to get some lots moving?

Thanks.

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Comments (6)

alabamanicole
16 years ago
Locally, one time close loans are extinct because investors won't buy them anymore. But my bank isn't charging me two closing fees and there's just a little bit of cost involved with the first close. You may have difficulty finding such a loan unless you go with a local bank that keeps all or most of their loans in house.
creek_side
16 years ago
For one time closing loans, check with credit unions. They are still doing them here. Also, if you live in a rural or semi-rural area, check with whatever passes for a farm credit bureau there. Those organizations do loans on homes too, not just farms.
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tracey_b
Original Author
16 years ago
But is there any benefit to carrying the whole thing? My builder said the only thing he could think of was maybe we could have a chance to lock in a rate earlier than if we waited until the house was finished.

But, even with one proper closing, it sounds like there will be extra closing costs involved for the construction loan side of it?

Thanks.
creek_side
16 years ago
My builder said the only thing he could think of was maybe we could have a chance to lock in a rate earlier than if we waited until the house was finished.

That part is true, and the rumor mill has rates being pushed higher by the fed.

The one time closing costs for us were less than two closings. The big thing, however, was no need for a second appraisal and all the attendant hassle. They appraised the house from the plans and contract plus the land. There will be no appraisal upon completion (except by the tax assessor, bless his heart)

If the land had not had significant value and we had not put down a substantial percentage of the construction costs, the second appraisal could have been risky. If you are building close to the bone, so to speak, and the appraisal comes in low, you could have to come up with a bunch of cash all of a sudden in order to satisfy the lender. Current law does not allow for any way to "fix" low appraisals, as far as I know.

I don't think builders aren't the best source for loan advice. Finance isn't their specialty, and it seems to me they have a conflict of interest when advising their construction clients.
tracey_b
Original Author
16 years ago
Thanks for jogging my memory, Creekside--the one-time appraisal was another plus, he said. I hadn't thought of that before, and in this market it's critical.

Your one time closing costs being less than two closings--I understand that, BUT, was the 1 closing cost less than for a "conventional" (just-purchased home) mortgage (am I making any sense)?

Thanks.
alabamanicole
16 years ago
You can't lock in a final rate far ahead on a construction loan. You get a rate for the monthly interest payments, and then when you close at completion you get your mortgage rate.

You need to call your local banks and see what they have to offer. "Normal" lending practices can vary widely by region.

And if you do find a bank that let's you lock in an interest rate a year ahead... give me their number!