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Mike Boehler 11-13-2011 05:00 AM

Mortgage Advice? Brokers?
 
I'll admit up front that mortgages aren't my expertise, or else I wouldn't be asking advice on a boating forum:rofl:

I'm selling my home, buying a new home (actually building a modular home)

I've spoke to my local mortgage banker, I'm not happy with the rate, but it was a construction loan she was quoting me. I'm not sure I need a construction loan.

Are construction loans more expensive (points and rate) than conventional mortgage?

Wife and I have 780 credit and we want to build our new home without selling the old home.

I have some cash, but not quite enough to make the full purchase of the new home without selling the old home. I have equity in the old home that I can use for the new home until the old home sells, but in its totality, when you add up all my credit available and cash available, I'm still a bit short of the new home total cost (which is why I'm taking a mortgage in the first place when the smoke clears)

I have enough cash in my business to pull this off, but don't think I could sleep at night if I raid my business for a lot of money.

  • Should I take the construction loan, at the higher rate and roll it over to a conventional mortgage?

  • Should I borrow money from individuals to complete the home and then get a conventional mortgage?
Why do I see internet rates of 3.75 fixed for 15 years, when my banker quoted me 4.75? Its not my credit score, is she just high? Oh, and her points were higher as well, so that can't be it.

Anyone have more experience then me?

OldPete 11-13-2011 05:52 AM

15 Year Fixed right now can be had around 3.075. There is more to it that you/we're missing.

franklinscar 11-13-2011 06:44 AM

Construction loans are at higher rates and are generally short term notes (12 months) that the bank will hold and not resell. They are loaning you "house money". The rate is generally higher and there is more work for the bank than a conventional mortgage. When you receive a construction loan for example of $500,000, the bank does not write you a $500,000 check at closing. You submit draws based on work completed. The bank will come an inspect to make sure all work is in place and then release your draw. Most construction notes have a fixed time period like 12 months and then you need to find permanent financing. This will be your standard 15-30 year fixed mortgage with a lower rate.

I am not a mortgage guy but I have taken out quite a few construction loans and this is how it works in GA. Of course we also have the highest bank failure rate so what do we know.

twobyfour 11-13-2011 07:11 AM

Not sure why you wouldn't shop around for the best deal for a mortgage. But as stated above, const loans are generally higher for the reasons stated above. If you did the $500k const loan, you pay interest only on the amount you have withdrawn. In other words, if your first draw is $50k, that is what you pay the interest on. By the time you get to the end, you interest payments will be higher. Many banks offer const-perm loans. In other words, they will give you the const loan only if they get the perm loan. These are normally your best deals. With your credit score and finacial situation as you described, you should be getting the best rates available.. Remember, when banks compete, you win.

Mike Boehler 11-13-2011 07:26 AM


Originally Posted by OldPete (Post 4150805)
15 Year Fixed right now can be had around 3.075. There is more to it that you/we're missing.


I'm not sure why the local Brick and Mortar bank is so high, the only variables that I'm certain of is my cash available, my new home price and my credit score.



Originally Posted by franklinscar (Post 4150892)
Construction loans are at higher rates and are generally short term notes (12 months) that the bank will hold and not resell. They are loaning you "house money". The rate is generally higher and there is more work for the bank than a conventional mortgage. When you receive a construction loan for example of $500,000, the bank does not write you a $500,000 check at closing. You submit draws based on work completed. The bank will come an inspect to make sure all work is in place and then release your draw. Most construction notes have a fixed time period like 12 months and then you need to find permanent financing. This will be your standard 15-30 year fixed mortgage with a lower rate.

I am not a mortgage guy but I have taken out quite a few construction loans and this is how it works in GA. Of course we also have the highest bank failure rate so what do we know.

I wonder if the construction loan produces a higher mortgage in the end? I can see the construction loan being a good tool, but if I'm going to pay for it for the full term of my loan, I'm going in a different direction


Originally Posted by twobyfour (Post 4150951)
Not sure why you wouldn't shop around for the best deal for a mortgage. But as stated above, const loans are generally higher for the reasons stated above. If you did the $500k const loan, you pay interest only on the amount you have withdrawn. In other words, if your first draw is $50k, that is what you pay the interest on. By the time you get to the end, you interest payments will be higher. Many banks offer const-perm loans. In other words, they will give you the const loan only if they get the perm loan. These are normally your best deals. With your credit score and finacial situation as you described, you should be getting the best rates available.. Remember, when banks compete, you win.

I'm not sure where else to look. I get emails daily from mortgage companies, also see them on every internet banner on every web page I visit, but I seriously don't trust most people, let alone, most banks. I would need a recommendation from someone to pursue a bank.

I suppose, a question would be, do I need a mortgage broker to sort this stuff out for me?

Dark Rumor 11-13-2011 07:29 AM

You might consider a home equity loan (i.e. second mortgage) on your existing home if you have equity in that home. When your new home is built you can take out a new mortgage and pay off the home equity loan.

Dark Rumor 11-13-2011 07:34 AM

Your bank should be able to offer you a construction loan with a mortgage. The construction loan will end when the house is complete and the mortgage will be used to payout the construction loan. You should have the rates locked when you sign for the loan.

franklinscar 11-13-2011 08:22 AM

Personally I would find a small local bank close to the house site. The kind of bank where you can walk in and talk to the president or senior level executive of the bank. This is not the type of situation you want to go to a Mega Bank for. The interest rate would be my last concern on a construction loan (within reason). You want a bank that will work with you and provide good customer service especiallly in regards to the inspections for draw payments. A good bank will get these done in a couple of days, a bad bank will get these done when they get around to it. Your carry cost on the construction loan is so small for exactly the reason twobyfour said. you only pay on what you've drawn. If you have a good bit of cash, set up your loan, start the house out of your pocket, and only start drawing from the bank when you get low on your cash or get tired of spending it. Depending on the amount of money borrowed, you are talking a $1000 difference on the "lower rate" vs "higher rate". Generally, in your situation, the construction to permanent loan is the way to go and will save you some closing costs.

fldmax 11-13-2011 09:21 AM


Originally Posted by franklinscar (Post 4151076)
Personally I would find a small local bank close to the house site. The kind of bank where you can walk in and talk to the president or senior level executive of the bank. This is not the type of situation you want to go to a Mega Bank for. The interest rate would be my last concern on a construction loan (within reason). You want a bank that will work with you and provide good customer service especiallly in regards to the inspections for draw payments. A good bank will get these done in a couple of days, a bad bank will get these done when they get around to it. Your carry cost on the construction loan is so small for exactly the reason twobyfour said. you only pay on what you've drawn. If you have a good bit of cash, set up your loan, start the house out of your pocket, and only start drawing from the bank when you get low on your cash or get tired of spending it. Depending on the amount of money borrowed, you are talking a $1000 difference on the "lower rate" vs "higher rate". Generally, in your situation, the construction to permanent loan is the way to go and will save you some closing costs.

Good advice if I may add to it. Some small banks don't have the flexibility to offer construction to permanent mortgage. Google 4 sale by owner they have brokers that are pretty sharp on how to get things done. I have used thema few times and got better deals tgen the back even thought about offering. But you can always go to your bank president and have a sit down come to terms meeting. Your current business dealing should be enough for the bank to get right with this. Bankers hate to see any solid account go away in these times

gort 11-13-2011 10:18 AM

Self employed looking at the potential of having 2 houses with mortgages in a falling market.


I would talk to the bank that takes care of your business accounts. My guess is being familiar with you situation they'd be the most flexible.

edale99 11-13-2011 12:28 PM

Building a house now so instead of pulling money out of investments I borrowed half the money. Construction loan at 5% interest only. When house is complete they will roll it into a mortgage at 3.55 for 15 years. BB&T local bank in my area.

fichtion 11-14-2011 05:11 AM

First Niagara bought NewAlliance so I am not sure if this still applies, but NewAlliance used to have the best contruction to permanent loan program going.

There are additional processing costs for inspections along the way and then a final inspection. Not more than 1K however.

Give them a call I believe that they close in states other than CT.

keithelder 11-15-2011 06:15 AM

OP 4.75 is definitely high. I work for Quicken Loans, the nations largest online mortgage lender so that rate is definitely out of line.

We have a great referral program and you can speak to one of our President Club bankers if you like to get some advice. Just PM me your Name, Phone and the state you live in and I can put you in as a referral which gives some extra perks.

One thing we have that no one else has is called a YourGage where you define the terms of your loan. A lot of our clients are going with this option today as it gives you the flexibility you need. You can read about it and watch a video on it here:

http://www.quickenloans.com/home-loa...tgage-yourgage

-Keith

Mike Boehler 11-15-2011 04:37 PM


Originally Posted by fichtion (Post 4152367)
First Niagara bought NewAlliance so I am not sure if this still applies, but NewAlliance used to have the best contruction to permanent loan program going.

There are additional processing costs for inspections along the way and then a final inspection. Not more than 1K however.

Give them a call I believe that they close in states other than CT.

Thanks:thumbsup:

First Niagara holds some equipment financing of mine. Been a good relationship.. I pay the bills and I never hear from them:rofl:

SurfFishLife 11-15-2011 06:14 PM

I've been in the mortgage business for the past 18 years. Franklinscar had very good advice. 4.75% is not bad for the construction phase. Maybe not the lowest in town, but not bad. When you get ready to convert to the permanent phase, then you should be getting "market" rates - although many lenders will make the permanent rate slightly higher than market. This is because they know that if you choose to get your permanent financing somewhere else by refinancing that you will pay more closing costs.


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