Need some mortgage help

ChevyHDGert · May 28, 2010

We're in the process of talking to banks about getting pre-approved for a construction loan to build our house and then roll it into a 30-year fixed mortgage.

This one guy told me that I will have 2 sets of closing costs. Won't I just have one, at the very end?

We have lots of equity on our house in town that we plan on selling sometime during construction and our land will be paid off by the time construction ends. The equity from our house sale will be our big down payment on the new mortgage.

Plus he told me that escrow is now mandatory thanks to some new federal law, that true?

This is all very confusing to me, anyone have any tips or advice?

oldnslo · May 28, 2010

ChevyHDGert said:
Plus he told me that escrow is now mandatory thanks to some new federal law, that true?

This is all very confusing to me, anyone have any tips or advice?

I did not have to include escrow in my mortgage as of 10/09. may be some thing new for 2010..

Roy

bp fick · May 28, 2010

If THAT particular bank works things that way, then chances are, that is the way it will be. Different banks have different ways of doing things, such as converting a construction loan, (note: loan) into a conventional mortgage. Loans and mortgages can be two different things. Some banks do something else and how someone else does it is meaningless.

I'd would be more concerned with rates, bank relationship, clarity, fairness, promptness and of course, costs.
Stay focused on those things. Shop more than one bank, unless you have some extraordinary loyalty to the one you are working with now. And... happy house building!!!

RTII · May 28, 2010

ChevyHDGert said:
We're in the process of talking to banks about getting pre-approved for a construction loan to build our house and then roll it into a 30-year fixed mortgage.

This one guy told me that I will have 2 sets of closing costs. Won't I just have one, at the very end?

We have lots of equity on our house in town that we plan on selling sometime during construction and our land will be paid off by the time construction ends. The equity from our house sale will be our big down payment on the new mortgage.

Plus he told me that escrow is now mandatory thanks to some new federal law, that true?

This is all very confusing to me, anyone have any tips or advice?

I was in the same situation last year. Could not find a loan institute that would just roll it over without new closing costs. In the end I went with 2 different banks, shopping for the best rate as well as the least closing costs. The bank that had given me the construction loan would have been $2,000 more in closing costs on the mortgage loan. I gave them the option of matching the rate given and they declined so i went with the lender that I have now. My opinion is it wasn't a very smart move by them (initial loss of 2K against the interest earned over 20 years). It's all bussineess.

MossRoad · May 28, 2010

ChevyHDGert said:
We're in the process of talking to banks about getting pre-approved for a construction loan to build our house and then roll it into a 30-year fixed mortgage.

This one guy told me that I will have 2 sets of closing costs. Won't I just have one, at the very end?

We have lots of equity on our house in town that we plan on selling sometime during construction and our land will be paid off by the time construction ends. The equity from our house sale will be our big down payment on the new mortgage.

Plus he told me that escrow is now mandatory thanks to some new federal law, that true?

This is all very confusing to me, anyone have any tips or advice?

I hope you can survive payments if your town house does not sell. That is about the only thing that is keeping us from building right now. No houses are selling for what they are appraised at and we don't want to keep all that money tied up in the equity of our unsold house.

mjarrels · May 29, 2010

I did'nt have any closing cost on my construction loan... but that was 12 years ago.

mark

ham · May 29, 2010

Slow down. Take your time. Remove emotion. Building your house needs to be done with a clear mind without time pressures. Do everything you can not to have a time frame on the construction loan. In other words lots of these have a 6 month building period to them which to me is not feasible and allows contractors and subcontractors to take advantage of your time constraint. This should be one of the most enjoyable times of your life...I know the building and occupying of our dream house has been the most enjoyable time of my life (other than my marriage and the birth of our children

. So take your time. Don't over extend. Do it in steps. Be a new smart American...and set a fresh example.

Mike Costello · May 30, 2010

Look at it as a 2 step process. Step 1: Construction loan is a temporary loan with a time limit that allows you to build your home. Since there is more risk involved, interest paid will be higher and typical escrow fees such as processing fees etc. will apply. The key here is to get your home built within the specified time limit of the construction loan. Step 2: Mortgage loan that will pay off your home in the number of years specified. This is where you can do the shopping for the best deal. Typical closing costs will apply here. Some banks will do both types of loans, so converting to a mortgage can be seamless.
When I built my home, the construction loan and the mortgage loan came from 2 differnt lenders. The construction loan gave me 18 months to finish my home (log home) and I did it in 11 months. The mortgage loan came toward the end of construction and envolved typical closing costs. As soon as construction was completed, the mortgage loan paid off the costs of building and began the 30 year payoff process we are all familiar with. I had no problems with the whole process, but I kept a heads up attitude on everything from construction to financing. I acted as my own general contractor and if your good at organization and people management new home construction can be very rewarding. I had alot of fun building my log home. Mike.

2manyrocks · May 30, 2010

ChevyHDGert said:
.

This one guy told me that I will have 2 sets of closing costs. Won't I just have one, at the very end?

A few lenders had a loan product that was a construction loan that then converted into a mortgage with one set of closing costs, but with all loans, you have to compare the total costs of each deal to decide what's the most cost effective.

Ordinarily, closing costs should be paid out of your pocket and not rolled into the loan.

Don't know if escrow is now mandatory because of federal law. Escrow is to protect the lender against your failure to pay your property taxes or insurance. It's not for your protection or convenience. In the past, the decision whether to require an escrow was up to the lender, and I have doubts whether it is now required by law--could be, but I'd have to verify it.

Maybe the market is good where you are, but even in good times, my realtor always said to sell what you have first so you really know what equity you're getting out of your existing home because committing to another one.

Before going into debt for 30 years, I'd suggest you look into Dave Ramsey's Financial Peace seminar at a local church to look at living debt free.

jwstewar · Jun 1, 2010

When did our construction loan almost 3 years ago now, we talked to banks that did it both ways with the Construction loans. Some wouldn't roll the construction loan over, others would. Finally we talked to Huntington National Bank. They would roll it over, had competive closing costs, some of the best interest rates, and we had approval while we were sitting in the office and closed 10 days later. Seemed like the best deal for us all the way around. We've since refinanced the loan again with Huntington and gotten an ever better 30 year fixed rate.

The bank did require us to do the escrow, but not sure if it is bank or fed that required that.

MarkV · Jun 1, 2010

I sure hope the housing market is better in your area than mine. It isn't unusual at all here for houses to sit on the market for well over a year priced a 1/3 less than they would have sold for 4 or 5 years ago. Be real confident your house will sell in the range you predict before planning on it being the big down payment on a mortgage loan. Is selling your existing house and using temporary living like a mobile home on your property an option at all during the build?

MarkV

riptides · Jun 1, 2010

Find a different bank.

Or shop around more.

We went through a pretty complex refi, and went from commerical backing to Federal backing. You'd be darn surpised how many banks and lenders blew smoke up my arse.

I still have a bad taste in my mouth about the whole dealings, I feel for people trying to hold down mortages and who are honestly trying to work with banks today. Very unpleasant.

Shop around until you find someone who will work "with" you.

dmccarty · Jun 1, 2010

We built 5-6 years ago and where able to get the construction loan set up so that we only had one closing. I have NEVER, EVER had an escrow but then I have only owned two houses. :laughing: Well, co-owned with the bank and the county.

I would be shocked if escrow is required by law. Talk to a real estate lawyer or other bank loan officers. If this is not true go find another loan officer. If you are having trouble with the loan officer now it is not likely to improve. Been There. Done That. Bought the T Shirt.

One thing I have learned is to never make time your enemy if you have a choice. If time cannot be your friend then at least let make time not so involved.

When we built our house the market was ok. And our city house had location, location, location. We also had enough money in the bank to handle the payments on the old and new house. Our house sold quickly because of location, location, location.

My parents were going to build a house on land we sold them. They put their house on the market and only had two buyers visit. One made a very low offer which my parents turned down. My parents had decided they would not build the new house until the old one had sold.

This was a good decision since they live in FLA and the house market disappeared right after their house was put on the market. If they had built a second home they would have made time their enemy and I don't think they could have sold their house in FLA. This happened 3-4 years ago and the market has not improved that much in their area.

Later,
Dan

ChevyHDGert · Jun 1, 2010

Our current house is paid for so there is no rush to sell it, although we don't want to still have it when we move into the new one.

We could find a place to go for a few months if need be.

The market here in southeast Texas is pretty good and never really went sour. We just don't know when to put ours on the market in regards to how fast or slow it will sell.

MarkV · Jun 1, 2010

ChevyHDGert said:
Our current house is paid for so there is no rush to sell it, although we don't want to still have it when we move into the new one.

We could find a place to go for a few months if need be.

The market here in southeast Texas is pretty good and never really went sour. We just don't know when to put ours on the market in regards to how fast or slow it will sell.

Thats great that your current house is paid for. It gives you a lot of leverage. The question would be if it can sell by the time you convert to a permeant mortgage. Might be a good time to shop for a good realtor and have a market analysis done on your current house. It would give you a pretty good idea of value and average listing length before sale of comparable houses in the area.

MarkV

rmully · Jun 1, 2010

One important thing to consider is that you have to have the work completed or the bank will not pay. When i did my loan with First Charter they lumped several trades into one inspection which made it very hard to move forward. Check the pay schedule and make sure they do not limit the number of inspections they will do. Good luck !!

Jagmandave · Jun 1, 2010

I'm sure it varies by region, but the house doesn't have to be completely finished to move in, right?

I'm thinking if I can get it weathered in, water, electricity, gas and sewer functioning then I could go ahead and move so I could get my other house sold (it's also paid for) thus shortening up the process a bit. I figure we'd just live in the basement while the finish work is being completed upstairs.

Or would that just add complications and ultimately more time to the process?

I'm thinking I could do a lot of the final finish work like paint and trim and save some money.

AMR · Jun 1, 2010

We built our house from 2004 to 2005. We shopped around and found a local bank that was awesome to deal with.

The construction loan was an ARM at 1%, you only paid on what you used, so we took out several hundred thousand but only paid interest on the portions for which you wrote a check, the unused portion was just never yours anyway. There were no closing costs at all, the only fee was an application fee and that was it. They included 4 free inspections for installments. We already owned the land that we built on so we used every single nickel we had allocated for the house, paychecks, everything before we touched the construction loan. We even got the builder to give us 30 days on a few payments so we could use cash. By the time we got our first installment from the bank, which was for the value of the land, we were paying our builder for the MEP rough-in.

The final morthage was really simple, again, no closing costs, fees, nothing. We were very lucky to have sold our house about a week before we got our CO and we essentially gave that money to the bank to pay down the amount of the loan that we used. The way it worked at our bank was the rates on the date of the CO was the lock on your mortgage. We could select any mortgage we wanted, we could stay with an ARM, 10 year, 15 year, 30 year, whatever. We locked in at the time for 15 years fixed at 5 1/8, again no fees.

I laughed that when you buy a house you pay all these fees, when you build it, granted you bleed money uncontrollably, but there are no bank fees, 5 years ago anyway.

Good luck, it is only as stressful as you let it be.

dave1949 · Jun 1, 2010

Jagmandave said:
I'm sure it varies by region, but the house doesn't have to be completely finished to move in, right?

I'm thinking if I can get it weathered in, water, electricity, gas and sewer functioning then I could go ahead and move so I could get my other house sold (it's also paid for) thus shortening up the process a bit. I figure we'd just live in the basement while the finish work is being completed upstairs.

Or would that just add complications and ultimately more time to the process?

I'm thinking I could do a lot of the final finish work like paint and trim and save some money.

That would be something to nail down early on in your area - are there restrictions on occupancy. I am sure it does vary considerably from area to area. We needed an occupancy permit when we built our first house back in 1995. Moved to a new town, very rural, nobody cares much beyond inspected plumbing/septic. We had one functioning bathroom, cooked on a camp stove and had concrete dust with every meal :laughing: It was getting grim living in the travel trailer using a porta-potty in November, just about anything with a roof and indoor plumbing was a real improvement.
Dave.