@Laura12: What you are looking for is a 1 time close with a modification/lock at or after 60 days of construction's finish.

The one time close's apparaisal is done ONCE - based purely on your blue prints @ application time.
During construction - you are using a draw basis loan to fund yur builder & pay interest only on only the draws he makes.

You modify your loan within 60 days out to a fix or ARM loan for usually a small fee & start paying the entire monthly P&I after the house is done.

With the details out of the way, more & more lenders are getting out of the CP business because it is hard to hedge against borrowers who want to build & then walk away half way through the build leaving the lender holding a unfinished property.

You will really have to dig hard to find a local or regional bank to do one these days.

We were lucky in our area because surprisingly, it's a culture here in our area to build custom houses & there are a couple of local lenders that solely do this type of loan.

Wow, I had no idea how hard it could be to get a decent construction loan in other states.

We are building a new house in New York, and I had several different bank options for our construction loan.

My loan is similar to sweet reverie's - interest only payments during the construction phase, and then after close it converts into a 30 year fixed rate mortgage, at regular 30 year rates.

I realize none of this helps Laura...but I just wanted to add that these loans do in fact exist, at least in some states and through some banks anyway.

@ Laura12 - can you tell us what terms you are getting offered ?

Because a best execution rate (what you see in the media as "lowest interest rates ever") is usually not the same as a no-cost rate & then you have closing costs which are separate but yet are actual real expenses at closing.

pbx2, yes, I'm looking for exactly the loan you describe. Back when I started this post I meant to title it as "Permanent 30 year close Construction Loans" and I missed part of it.

I am being offered a reasonable rate and fees for a construction loan that rolls into an ARM (3.5%, interest only during build, around $3000 in fee, no points). So it is technically a permanent close loan, I am just not someone who thinks of an ARM being a permanent solution.

Instead I am looking for a bank in California that offers what seems so common in other parts of the country, a loan which rolls into a 30 year mortgage without refinancing. I would be willing to pay significantly more fees to have this peace of mind as well, especially as it would save me in the fees associated with refinancing (probably $5000 for title, escrow, recording etc plus whatever bank fees are associated with the loan we choose at that time).

This is one way that GW has been bad for me - I didn't know this type of loan existed until I read all of your posts and now I have been calling all the local banks and credit unions I can find to try to get a similar arrangement to no avail. Most of the banks here have no idea that in other parts of the country these types of loans are still possible!

dekeoboe - I locked in my permanent rate already and have the option to float down. Had to lock in my rate before loan closed and construction begins next week. I am with Suntrust.

gaonmymind - I've tried BBT and Suntrust and they don't service loans in CA, but I haven't heard of Regions before - I'll try them!

Sorry for so many responses, but Suntrust site says they lend in 48 states and I believe CA is one of them.

Oh, and one of those online construction mortgage brokers did offer me a 30 year rate, but the fees were 2% on top of the fund management fees during construction! That was a bit to high, however it goes to show that there is at least one option out there and I just need to find my way around the middle man!

Sorry posted last response before I saw your comment.

That is odd, because I did call them back in April, but I'll try again! Thank-you!

Just went on Suntrusts website, they must lend for regular mortgages to other states, but construction loans are limited to: AL, AR, DC, DE, FL, GA, MD, MS, NC, PA, SC, TN, VA and WV

Thanks for the advice! This is soo very frustrating!

Regions also doesn't serve the west coast, and according to their site they only offer ARM construction loans.

Laura, which part of the bay area are you building in. We are on the lower peninsula. We are very close to being ready to put up story poles (next phase of permit approval process). I am still hopeful we can get started before end of November!

Caben, which bank are you using for financing?

We are building a bit further south (sorry I don't want to be too specific on a public forum, especially since I used my first name on this board)! :) Feel free to PM me.

Next week we are submitting for a design review exception and it looks likely to be approved, which would exempt us from the story pole process!!! One less hoop to jump through!

We are hoping to finalize our plans next week, then it will take about 8 weeks to get the engineering and construction drawing finalized, a couple weeks for formal bids, and then we can submit them for permits. So, it looks like we will be lucky to break ground by the end of January.

Posted by Laura12 (My Page) on Fri, Aug 17, 12 at 12:05
Just went on Suntrusts website, they must lend for regular mortgages to other states, but construction loans are limited to: AL, AR, DC, DE, FL, GA, MD, MS, NC, PA, SC, TN, VA and WV
Thanks for the advice! This is soo very frustrating!

You are correct that while their bank charter allows interstate banking, their area of focus are mostly mid-atlantic to souththeast.

Can you name the Banks you looked at so far?
Maybe we can offer some alternatives.

I have called about 25 local banks to no avail, and I couldn't begin to list them all.

There have been others located around the country I heard of mainly though GW, but I don't have all their names written down. What I can think off the top of my head is: Farm Credit Untion, BBT, Suntrust, Regions, Fulton, Wells Fargo, Bank of America, US Bank, Bridge Bank, US Bank, Umpqua, citizens business bank, Torrey Pines Bank.

Interesting that some of you were able to lock in the 30 year mortgage before construction. Does your build have to be completed within a certain, short timeframe?

We are with BBT and had the type of loan pbx2 explained. We could only lock in up to 60 days before the modification, but we were able to get a 3.5% rate, so we were pretty happy.

Dekeoboe - does your loan convert to a 30 year at the end of construction, or an ARM?

From what I have seen, the 30 year close up front with a float down option usually have higher interest rates (usually by a 1%), but still one year to complete construction.

Posted by Laura12 (My Page) on Fri, Aug 17, 12 at 18:50

I have called about 25 local banks to no avail, and I couldn't begin to list them all.

There have been others located around the country I heard of mainly though GW, but I don't have all their names written down. What I can think off the top of my head is: Farm Credit Untion, BBT, Suntrust, Regions, Fulton, Wells Fargo, Bank of America, US Bank, Bridge Bank, US Bank, Umpqua, citizens business bank, Torrey Pines Bank.

Curious Laura12: is your anticipated loan amount to be >$417k??
That may be affecting any lender's ability to find a good loan program for you.

So how about:

California Bank & Trust
First Republic
American Riviera Bank
Bay Area Capital Funding, Inc.
United American Bank
Bank of the West
California Mortgage
Premier West Bank

Also, talk to a couple very reputable realtors in your area and ask about a good construction loan bank or broker to go through.

The issue has solely been one of banks not offering construction loans in California, as none of the banks who do had issue with our loan amount being over $417,000. I'm guessing that local building costs (and even more so, land costs) are one of the main reasons that so few banks offer construction loans in my area.

I called quite a few of the banks you listed, though there are a few that are new to me, who I will call next week. Did you just pick some banks you know are in California, or do you know that these banks offer construction loans?

pbx2 - The names of some of the banks you suggested were similar to ones I had called, but actually when I look at their sites most of them are new me! ;)

I'm happy to have some new options to call! :)

The reasons California is so void of CP lenders are:

1) high foreclosure rates
2) hard to sell jumbo loans (>417K) on the secondary market
3) jumbo loan usually cost >1% above conforming (In short, it's a very risky loan & the only way you can get one is if you put 25-40% down on the total value of the project.

Anyhow, good luck hunting with the list above - hope you find a fit!

Cal Bank and Trust- Converts to an ARM.

@laura12 : Which ARM are you getting offered as the permed up loan?
Because getting a 4 % 7/1 or even 5/1 loan can bridge you until you understand your market & personal situation more to refi in the future.

My concern about the ARM is two fold, one, refinancing will cost an additional $6000 in fees and second, knowing we won't need to go through another appraisal releives a lot of stress.

As I mentioned, one of the online construction loan brokers offered me a 30 year close loan, though the fees were outrageous. That does show at least one bank is offering them so I am trying to find it directly.

Oh, and with the current market and interest rates we would not wait until the end of the ARM to refinance, we would like to lock a rate in within the next year.

We do understand our market and our own situation, which is why we are looking for a 30 year option.

Laura - Ours converted to a 30 year mortgage.

Laura, the loan you are trying to find is called a Construction to Perm loan. I have never heard it called by some of the terms you are using.

CP (construction perm) means that you close on the loan one time and it automatically converts to a permanent loan at the end of the construction period. These loans are *almost always* adjustable rate and interest only during the construction period. If it is just called "construction loan", this typically means it is the financing only for the construction period and you will have to find other permanent financing.

Once a CP loan rolls to the permanent financing, it will either be into a fixed or an adjustable rate loan. Both are 30 year loans, meaning the house will be paid off in 30 years. The permanent part means that this is your permanent loan, you do not have to refi again. It does not mean your rate will necessarily stay permanent. That will depend on if your permanent portion is Fixed or ARM.

Fixed rate loans are typically called 30 year Fixed. Adjustable loans are abbreviated, for example 7/1 ARM which means the rate is fixed for 7 years then adjustable every 1 year after that for the remaining 23 years. There are limits on how much these loans can be adjusted each year and a limit on the lifetime cap of the rate (ex. 7/1 are usually capped at 6% over the start rate, so if your rate during the permanent 7/1 period starts at 3.5%, it will be 3.5% for 7 years, then the max it will ever over the remaining 23 years is 9.5%).

The permanent financing rate (whether it be 30 year fixed, or an ARM) of CP loans are often locked in before construction starts. Other CP loans will allow you to "float" the rate and lock in at some point during or near the end of the construction period.

It is true that even if some of these other banks were available to you in California, that you would have a very hard time getting them over 417k. I am a mortgage loan officer and even knowing all that I do and having done many construction loans in the past, I still had a hard time finding a good construction loan. Lending in general is stricter now than it was years ago and construction loans are even more so.

It would be a good idea to call every single bank in your phone book and anywhere near you. Even banks you called before, sometimes even other branches of the same bank. Often the first person you spoke with may be completely clueless and giving you the wrong information. Ask them if they do residential construction loans, then you can get into your specific details. If they do not do any time of construction loan whatsoever, ask them if they know of any lenders that do. I found our loan by advice from another bank.

Because your loan amount is more than 417k, expect your interest rate to be higher. This is called a non-conforming or jumbo loan. Conforming rates are lower than non-conforming rates. It is possible that you are in an area that is an exception to the 417k rule. These are called "high cost" areas and the loan amount ranges from about 417k to 650k where it can still be a conforming loan. i.e. you get the lower conforming rate.
You can look up your county on this website ... https://www.efanniemae.com/sf/refmaterials/loanlimits/xls/loanlimref.xls

Re: Down payment required
How long have you owned your lot ? Do you owe anything on it ? How much will it cost to build ? What is your expected appraised value ? When you factor all of these things together, it is possible you may be able to get your construction loan with no money out of pocket. As an example, AB has owned his land for a pretty long time. If you have owned your land for more than 1 year, you will be allowed to use the appraised value of your home to determine downpayment. His new house will appraise for $575,000 and the cost of construction is $400,000. His loan-to-value is approx 70% which is like he put 30% downpayment even though he didn't have to pay any downpayment out of pocket. If his closing costs are $20,000, then $420,000 / 575,000 = 73% loan to value.

ARM loans are not necessarily evil, although they have been portrayed to be. Both our primary house and our second home loans are ARMs !! As an example, A $600,000 loan at 3.5% ARM will save $2000/yr over a 4% Fixed. Over 5 years, that is a savings of $10,000. If you knew that you wanted to sell your home within the next 7 years, then a 7/1 or a 10/1 ARM might be perfect for you. As another example, our goal is to pay off our house within 10 years, so we got a 7/1 ARM. If we keep on track, at the end of 7 years we will not owe much left on our house so it won't matter if the rate goes up some. We will have saved more over the 7 years than the increase in the payment will possibly be (if the economy stays like it has been, the rate may not even increase 7 years from now!). As another example, maybe right now you have kids in college that you have to pay for so you need a lower ARM payment now, but at the end of 4 years they will be graduated and you can afford to pay more. There are *some* scenarios where an ARM is a good thing. That being said, for the majority of my clients, I recommend a fixed rate right now.

Sorry for this huge long spiel. Obviously this is something I am passionate about, LOL ! To answer your original question ... keep calling around. What you are looking for is probably out there, you just haven't found it *yet*.

Thanks Angela,

While I very much appreciate the time you took to respond, I do understand mortgages and how a construction to perm loan works (though I did get some of the terminology wrong).

As I mentioned, the jumbo loan issue has not been a problem (btw in our area the conforming loan limit is $650,000) the problem is that the only banks offering construction loans are offering construction to perm ARM and we are looking for a 30 year option. Also, there are just very few banks offering any type of construction financing.

I understand the benefits of each type of loan, and for us a construction loan that rolls into a 30 year mortgage is the best solution. that said, I have found some excellent rates for a construction to perm ARM, and we will go with that if we don't find any other options.

I do know that at least one bank offers a construction to perm 30 year loan in my area as it was offered to me by a construction loan broker, so it Is possible, and I am trying to find a bank directly.

Who is the lender the broker is planning to use ? Does this lender not have retail branches that you can contact directly ? Most of the time, you will get a better rate/terms using a broker to go through the same lender. I can offer better rates running a loan in house through Wells Fargo than you could get if you went to Wells Fargo directly. Also, with the changes in the mortgage industry, the broker has to be paid either by you -or- by the lender (not a combo of both). Ask your broker what his 30 year Fixed rate would be if he is paid from yield spread (YSP) - that is the old terminology but he will know what you mean.

You are correct very few banks are offering any type of construction financing. Even the bank we used just last year was bought by another bank and no longer does construction loans !! You will literally have to call everyone. You can also try calling some builders and asking what banks their clients are using. I know my builder would be able to answer that question if someone asked.

ARM loans *are* 30 year loans. Make sure you are asking for CP that converts to a 30 year Fixed loan. You can leave off the 30 year part if you choose, that is to differentiate between 15 year Fixed, 20 year Fixed, etc, but you definitely need to include the term Fixed rate when you are speaking with lenders.

That's great that the your area is conforming 650k area ! If your loan amount falls under that, it means your loan is NOT a Jumbo loan. If you tell any lenders your loan amount in the initial discussion, be sure to let them know yours is conforming not jumbo. Especially if they are out of your immediate area, they may automatically assume yours is jumbo without looking it up. I can assure you ... Jumbo Does make a difference, and not a good difference, for many construction lenders.

@Angela- I don't think the broker disclosed which lender they intend to use in this case.
I am also in california and every single close loan goes into an ARM as well.
Google searches to referrals have all failed.

If anyone has a lead. Help!!!

Angela, in this case the broker was charging a 2 point fee and wanted a payment from me upfront. He was not someone I want to work with thus I am trying to find a bank directly. Also, as I mentioned, I do appreciatte the help, but at this point I am looking for leads from GW, not advice regarding how mortgages work.

I have gone through the phone book, asked builders, real estate agents and designers for referrals and there are very very few options, and they are all ARMs. Also, as I mentioned, it isn't a matter of the loan amount, banks are simply not offering construction loans covering my area. Custom building where I live is also not very common, and after reserved for the very wealthy (which I am not).

I am hoping someone has found a bank who is offering a construction loan that rolls into a 30 year rate mortgage. It is impossible to call every bank in the state, or even in the bay area alone so every bank suggestion is appreciated!

When we were shopping for a CP loan, the only bank that would convert to a fixed rate wanted to lock us in at 4.2% with no opportunity to float down which we found much too high. We went with a regular construction loan and are gambling that interest rates aren't going to rise signifigantly between now and October when we should be able to lock in a rate when we shop for perm. financing. Paying 2 separate closing costs are less than the CP bank wanted for the 1 time close, too.

Good luck finding a good CP loan!!!

Parsonse - thanks for the background! You are right, if those were the terms it wouldn't make sense. It is really only a good deal with the "float down" option.

Parsonse: I read about a thousand "interest rate forecasts" and everyone seems to concur that interest rates will "stay low" until next summer. Staying low does not mean that they will stay at 3.6% for the next 9 months... Most forecasts I saw, the rates will be around 4% or a bit higher by next summer- steadily going up. Rates cannot stay this low for too long as people will be pushing for higher rates for their savings accounts. So guessing that rates will still be at 3.6% over a year from now it not likely an accurate assumption. They will probably be over 4% as the Fed's long term forecasts says they will rise mid 2013. I wish our bank was offering 4.2% for a one time close fixed rate. Historically 4.2% is an amazing rate. I agree about the closing costs being a deal breaker though... ours are less than if we did the two part. For me there was going to be so much stress building as first time builders AND also stressing about what will happening with rates and if the appraisal would come back ok. The one time close only does the appraisal once in the beginning of the loan and knowing that was done. I just thought I would share my thought process on choosing between the two loan types in case anyone here is/will be making that decision.

Laura, I keep hoping someone has a lead for you. I totally get what you are saying about the ARM not feeling like a permanent solution. We plan to pay the house we are building off and live there for a long time, and with rates as low as they are now, I want to be able to take advantage of locking for the long term and not having a resetting ARM hanging over my head.

Right, I understand you may not be asking for mortgage advice, however, a few of the things you are saying are slightly incorrect. Others may come to this thread searching for the same thing and use this thread info as a resource.

Maybe you could ask the broker what lender he was using ? Or has he refused to tell you ?

Oh, also a few lenders may offer a CP ARM loan but have the option to modify to a Fixed rate loan at the time of conversion.

This thread is from 2010, so some of these lenders could be out of business, but several banks were mentioned that have CP Fixed rate loans ... http://www.ownerbuilderbook.com/forum/messages.aspx?ID=4178

Sweet reverie, your thoughts ate exactly where mine are. We hope to break ground in Jan, and hopefully be in by next summer.

Angela, thanks for the link, I'll look into it and see if they mention anything that covers my area.

Also, I know some lenders will modify into a 30 year loan, however that again has this far not been an option I have found in my area.

The broker refused to share the name of the Construction loan vendor.

Oh, that broker is stinky !!! Boooo !

@laura12 - I agree with angela, the correct phrase is converting to a permanent FIXED RATE loan. Drop the 30 year reference, it will confuse the lender or people trying to help you get a loan.

pbx2 - sorry for using the wrong terminology on here, when speaking with banks I have been asking about fixed rate options.

I tried all the banks you suggested and they are either no longer offering construction loans, or they only offer ARMs. Actually, some are only offering alternative financing at 7-9%!

A couple are supposed to call me back still, but it didn't look promising...

Well, all the banks referred to on here have gotten back to me and none of them offerred a 30 year close CP loan. Oh well...

A couple were even brokers and couldn't find anything better than the two options I have found thus far...

After calling around to EVEN more banks hoping to find a better solution for us I have realized one thing:

I need to stick with what we have found as we are lucky to have found ANYTHING in California!

Laura, So sorry you are having a tough time finding a CP loan. I do understand what you are going thru since we went thru very similarly hard time finding our CP loan.

Next best advice is to lock into an ARM with the lowest possible fees and that will cost you the least in interest during construction, no matter what the final rate is. Then, figure out who you will be using to refi to a Fixed and have them help you keep a VERY close eye on the rate market. If they start to rapidly deteriorate, you can lock into a long lock period for a Fixed rate refinance ... you will go ahead and be underwritten and will close on the refi into a Fixed as soon as your construction is finished. This lender or broker needs to be someone who has access to Mortgage Baked Securities market that they can monitor the movement for you.

Rate lock periods can generally be for up to 60 days. Some lenders will allow 90 day locks. Other lenders will allow even longer lock periods with an upfront fee. Keep in mind .. As a general rule, the longer your lock period, the worse the rate at the same origination cost. I.e. If you are paying 1% origination

Hi Laura and All --

I'm just jumping into the search myself. We're hoping to build a house in the Richmond Hills, and looking for that same mythical conforming California single close construction loan that converts to a 30 Fixed rate mortgage.

I was wondering if you had any further updates. Did you go ahead with US Bank? We're there any other banks you thought were worth talking to?

Angela was right, this thread is a great resource for someone like me trying to get up to speed. Thanks to all!

--nate

Hello all!

Can't agree enough on this thread being a useful resource. Here I am about 4 yrs from the last post trying to solve the very same issue - finding a Construction Loan that will magically change to a permanent fixed rate 30 yr mortgage once the house is built without having to go through 2 transactions and 2 closing costs etc.

Has anybody found such a lender who services the bay area in CA? My research in the past on this suggested that First Republic was one such bank who would do it but charges 1% of the loan amount as points to be able to do that which was rather high for 1M+ loan. Here's the link:

https://www.firstrepublic.com/personal/residential-lending/all-in-one-acquisition-to-construction-to-permanent-loans

-sudhir

Any update on this fellas?! @raosudhir would you be kind enough to share how much First Republic requires as a down payment? Thanks!

Any updates here? I'm also in the Bay Area.