Tell me your experience with a single close construction loan

BAVEMay 18, 2012

Please tell me your experience with a single close construction loan. We are now debating between this and a standard construction loan. Thanks.

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MichelleDT

We are doing this type of loan on our new build. We will close on the loan up front prior to construction being complete. We pay closing costs one time vs two. On a normal construction loan you would pay closing on the construction loan itself then pay AGAIN when you close on the permanent mortgage once construction is complete.

These loans are normally quoted as an ARM (Adjustable Rate Mortgage). In our case, we took the 7 year ARM at 3.27% (non conforming jumbo).

The rate remains the same during the construction period and when the house is complete, we can choose to roll-over to a fixed 15, 20 or 30 year mortgage at current market rates or we can elect to remain with the quoted ARM rate for up to 7 years.

During that 7 year period we can roll the mortgage over into permanent at any time if the rate becomes more favorable for a small fee (in our case - $250). If we roll-over when construction is complete there is no additional fee to make the loan permanent.

With a regular construction loan, we would need to secure a permanent mortgage at the end of the construction phase -- so we run the risk of the rate not being favorable (or as favorable) at that time.

We can also re-amoritize the loan at any time during the mortgage lifetime (minimun of $5K) which we plan to do when our current home and a rental condo sells.

We felt it the best way to go for our build but obviously rates and terms vary from bank/bank and region/region and credit rating always plays into this so YMMV.

Hope this helps.

M

    Bookmark   May 19, 2012 at 1:28PM
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downsy

We did the same type of loan that Michelle described. It was an up front one time close with a 7 year arm that we converted to a 15 yr rate when we moved in. We have the option to re amortorize if we ever want to pay a chunk toward the principal. The fee for that would be $250. I think we did a great job of keeping our interest and closing fees at a minimum by using this type of construction loan along with our home equity loan money on our previous home. We were very blessed to build our new home and sell our old home at the perfect time and move from one to the other.

    Bookmark   May 19, 2012 at 8:41PM
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miffy13

Wow Michelle. That is an amazing deal. What bank is that through?

    Bookmark   May 19, 2012 at 9:36PM
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BAVE

Thanks for the input.

We are ready to sign on our loan at a negotiated rate. My credit score has always been under 700 so the loan is less than optimal. Here are the terms.

1.Single close with fees upfront
2.rate is 30 year fixed at 4.6% (not jumbo) but there is a one time float down option during the final 30 days of construction. As of today my rate would be 4% on 30 year fixed with option to pay a point or 1.5 points to get below 4%
3.no escrows required

    Bookmark   May 19, 2012 at 10:00PM
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MichelleDT

Bave - 30 fixed conforming for A paper is about 3.7-4.1% so with less than A paper, I guess ur not doing too bad. In fact, 4% is not bad at all with no extra fees (sounds like u already paid them). I don't know, only u know what ur rating is. U would have to run numbers on the point or point.5 to see if it makes sense to take the float down in 30 days. I would think it would take a big % drop (more than .25, .50 or maybe even 1) to make up the 1 or 1.5 points but I don't know the original loan balance nor do I know how long u plan to stay in the house.

Miffy13 - 1STBank but they are local and not national although I think they are in California as well as Colorado. We have multiple loans with them so not sure if that helps or hurts. We LOVE working with them.

M

    Bookmark   May 19, 2012 at 11:01PM
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