1 time construction loan rate ?'s

10 years ago

It seems in my area the only option is the 1 step construction loan. We had shopped and pre-qualified before but now that permits are in its time to tie things up. I had previously thought that one lender had a higher rate for the construction period and floated down with a cap but now no one is doing that. (this is 6 months later)

My question:

30-year rates are at 4.125%

Lender 1: Lock in now for the construction at 5.125% and keep that for the duration. Good if interest goes up in the next 6-9 months.

Lender 2: Lock in later, 45 days from close, so for the construction period it is the same 5.125% but you have the chance to lock lower in 6-9 months if rates are lower than that then.

What's everyone's gut saying? I am thinking lock now at 5.125% and not take my chances with the market.

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Comments (9)

MFatt16
Original Author
10 years ago
To clarify, no one floats down with a cap anymore. The second lender floats down but it could be higher, potentially, than the initial rate.
charannthom
10 years ago
My gut would say lender 1. The reasons have less to do with the market itself and more to do with the fact that building is stressful enough as it is without having to worry about rates fluctuating and feeling the need to keep an eye on them throughout the process. I would rather lock in and forget about it... I feel like I would beat myself up less that way.

But I think the general rate trend has been slightly upward anyway... we purchased our current home in October last year at a rate of 3.45%. I personally would lock in now.
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heyo
10 years ago
What are closing costs for each scenario? I ask because we went the one time close route due to closing costs being the same either way. You can always refi right away if rates are down enough to make it worth doing so which you'd basically be doing anyways if you did separate construction and mortgage loans. In the meantime, if rates go up you're sitting pretty and, as mentioned above, with a lot less stress!
MFatt16
Original Author
10 years ago
Closing fees are both right around 10k.
heyo
10 years ago
#1 all the way with a potential refi in the back of your mind
MFatt16
Original Author
10 years ago
Thanks, you are all confirming my gut feeling.
motherof3sons
10 years ago
Ditto #1. We had a construction loan of 3% and finally closed 4 months after we moved in for 2.62% 15 years. Rates seem to be on the rise in our area - a 15 year mortgage is now around 3.25%.
NWHobart
10 years ago
Agree with #1, and if I remember you are in the NW.

If you hapen to be going with the same bank we did for option #1, I want to point out there is a prepayment panalty required if you refinance wihtin the first 5 years of the loan. This wasn't an issue for us but it was a little bit of a surprise. So far they have been excellent and draw requests have been paid within 2 days.

Another point I wanted to make which was a big deal for us is the one time close. This meant that the appraisal was done now on what the future value of the house will be. I'm happy we won't have to worry about whether or not our house will appraise for the value we need it to be 8 months from now. Best of luck to you!
MFatt16
Original Author
10 years ago
Thanks NWHobart. We are going with Homestreet and they do not have a prepayment penalty. It is good to know that someone else is happy with the one time close. I just want to get on with everything!!! I really appreciate the comments, I will have many more posts as we get going I am sure.