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Message
New Construction Loan
Posted on 1/8/22 at 11:08 am
Posted on 1/8/22 at 11:08 am
Hoping some of the loan industry guys can help me out with a question regarding a loan for new home construction.
We are attempting to obtain financing for a new custom home construction project, and specifically looking for a loan product that allows us to lock in a fixed rate up front at the beginning of construction. The amount of the loan will be approximately $800k, and I plan to bring $300k to the table at final closing when construction is complete and my current home is sold. A mortgage lender at Hancock Whitney reported that we didn't qualify for such a product because the finished home/property would appraise for an amount higher than $600k (something like that, I don't remember the exact figure), and because such products require an annual income exceeding $330k. He also stated that such loan products would require that the project complete within 12 months, which is unlikely in my situation due to the nature of the project. The lender offered a 10year adjustable rate at 2.625 paying interest only during construction and offering the ability to set a fixed rate when construction completed if within 16 months. At the end of the 10 year period, the rate would adjust to a new fixed rate, which would be whatever the market dictated at that time. However I assume that would require a refinance. Otherwise the rate would be variable. So essentially he's offered a 10/1 ARM.
It was my understanding that the type of loan product that I'm looking for was fairly commonplace, and I've never heard of maximum appraisal limits and such high income requirements. Can anyone comment? It feels like i'm just being pushed into a variable rate product.
We are attempting to obtain financing for a new custom home construction project, and specifically looking for a loan product that allows us to lock in a fixed rate up front at the beginning of construction. The amount of the loan will be approximately $800k, and I plan to bring $300k to the table at final closing when construction is complete and my current home is sold. A mortgage lender at Hancock Whitney reported that we didn't qualify for such a product because the finished home/property would appraise for an amount higher than $600k (something like that, I don't remember the exact figure), and because such products require an annual income exceeding $330k. He also stated that such loan products would require that the project complete within 12 months, which is unlikely in my situation due to the nature of the project. The lender offered a 10year adjustable rate at 2.625 paying interest only during construction and offering the ability to set a fixed rate when construction completed if within 16 months. At the end of the 10 year period, the rate would adjust to a new fixed rate, which would be whatever the market dictated at that time. However I assume that would require a refinance. Otherwise the rate would be variable. So essentially he's offered a 10/1 ARM.
It was my understanding that the type of loan product that I'm looking for was fairly commonplace, and I've never heard of maximum appraisal limits and such high income requirements. Can anyone comment? It feels like i'm just being pushed into a variable rate product.
This post was edited on 1/8/22 at 11:22 am
11
Posted on 1/8/22 at 11:19 am to 22jctiger22
Find a new bank. Wouldn’t do an ARM
Posted on 1/8/22 at 12:22 pm to Tshiz
I completely agree that ARMs are to be avoided. Of course, I could lock in a fixed rate once construction completed and avoid the ARM, but I'd prefer to lock in the fixed rate now given the interest rate environment.
Our income, DTI, credit position, and current asset mix should not prevent us from qualifying for an $800K loan. What I'm curious about are these statements that the loan officer made regarding maximum appraisal amounts and minimum income amounts. We own the land on which the house will be built, as well as the home in which we live, outright. The land would likely appraise for approximately $350K today, and our builder is offering attractive construction costs. I expect that the house/property would appraise for $1.1M - $1.2M once complete.
Of course, the lender explained these disqualifications to a fixed rate product to me on the phone and did not put them in writing. The only thing the officer put in writing was the offer for a 10/1 ARM.
Our income, DTI, credit position, and current asset mix should not prevent us from qualifying for an $800K loan. What I'm curious about are these statements that the loan officer made regarding maximum appraisal amounts and minimum income amounts. We own the land on which the house will be built, as well as the home in which we live, outright. The land would likely appraise for approximately $350K today, and our builder is offering attractive construction costs. I expect that the house/property would appraise for $1.1M - $1.2M once complete.
Of course, the lender explained these disqualifications to a fixed rate product to me on the phone and did not put them in writing. The only thing the officer put in writing was the offer for a 10/1 ARM.
Posted on 1/8/22 at 3:51 pm to 22jctiger22
We did a interest only construction loan with an ARM and locked in rate one time closing. When construction was complete we just refinanced into traditional.
Posted on 1/8/22 at 6:33 pm to 22jctiger22
Try Gulf Coast Bank & Trust
Not sure if they can do it, but they did my construction loan and I was very impressed.
I had a rate locked in before construction with the option to go lower if the rates went down just before completion. Only one closing.
Not sure if they can do it, but they did my construction loan and I was very impressed.
I had a rate locked in before construction with the option to go lower if the rates went down just before completion. Only one closing.
This post was edited on 1/8/22 at 6:38 pm
Posted on 1/8/22 at 6:35 pm to PerceivedReality
Interest rates are fixing to go up, it has been announced. Sounds like they’re trying to frick you with an adjustable rate product because they know it will go up.
Posted on 1/8/22 at 11:09 pm to RougeDawg
quote:
I had a rate locked in before construction with the option to go lower if the rates went down just before completion. Only one closing.
I did the same thing with Flagstar and ended up with 3/4% lower after we completed the construction.
Posted on 1/9/22 at 6:45 am to 22jctiger22
Sort of confused by some parts of this. Sounds like he’s talking about loan limits and jumbo loans. Loan limits for 2022 are $647,200. Your construction loan is $800k? What will your traditional loan be for ie new appraisal estimate of house? Generally banks want a 20% down payment on the $647k as well as cash for any amount above the loan limit. If that can’t be met then it’s a jumbo loan which usually requires income limits. Hope this helps.
Posted on 1/9/22 at 3:18 pm to 22jctiger22
The loan product you are asking for is going to be hard because the bank/lender/investor is taking a risk. Builders can go MIA, prices of materials fluctuate, you could loose your income etc. As a result, most lenders will not let you lock up front. They need to see a completed project so the market has a value in case they have to foreclose on the property.
Also Hancock is a traditional lender. Post Covid has opened the doors again of non-traditional lending, aka non QM. These loans are not sold to Frannie and Freddie and as a result, they have different lending requirements.
I would go to a broker or independent mortgage bank to see what other investing options you have. Not every situation fits into a box and many times that is all banks offer. Reach out directly if you want more clarification username @gmail.com
Also Hancock is a traditional lender. Post Covid has opened the doors again of non-traditional lending, aka non QM. These loans are not sold to Frannie and Freddie and as a result, they have different lending requirements.
I would go to a broker or independent mortgage bank to see what other investing options you have. Not every situation fits into a box and many times that is all banks offer. Reach out directly if you want more clarification username @gmail.com
Posted on 1/10/22 at 7:16 am to lsujunky
quote:
I did the same thing with Flagstar and ended up with 3/4% lower after we completed the construction.
How was your experience with Flagstar? Were their rates competitive?
Posted on 1/15/22 at 7:23 am to 22jctiger22
Pretty sure we talked to the same lender at Hancock/Whitney.
I was leaning towards the Jumbo loan myself but am trying to research it more. They way I understood it was:
2.625% interest for 10 years, amortized over 30.
At 10 years it could balloon up to 2.75% higher so would likely need to refinance at that time.
I tried to do the math on this, but want to know what I might be overlooking.
If I can lock in a 2.6% interest rate now pre construction - monthly note on $600k loan is about $2,400 month - if I were to then refinance the remaining balance over 20 years the note is about the same even if rates go up to 5% ($2,600 @ 5%)
Alternative seems to be having to wait until construction is completed and locking in at whatever those rates are.
I was leaning towards the Jumbo loan myself but am trying to research it more. They way I understood it was:
2.625% interest for 10 years, amortized over 30.
At 10 years it could balloon up to 2.75% higher so would likely need to refinance at that time.
I tried to do the math on this, but want to know what I might be overlooking.
If I can lock in a 2.6% interest rate now pre construction - monthly note on $600k loan is about $2,400 month - if I were to then refinance the remaining balance over 20 years the note is about the same even if rates go up to 5% ($2,600 @ 5%)
Alternative seems to be having to wait until construction is completed and locking in at whatever those rates are.
This post was edited on 1/15/22 at 7:55 am
Posted on 1/15/22 at 7:30 am to cajuntiger26
Call First American Bank & Trust. I am in a similar situation, halfway through construction, and have been happy with them. When I applied, they were offering 12 month interest only construction to permanent with a one time close. The closing costs (read: origination fees) are a bit high, but not enough to offset the savings from one time close.
Posted on 1/17/22 at 7:08 am to RougeDawg
Thanks for sharing. The conditions are really good. I hope https://fitmymoney.com/personal-loan-reasons/ will help with a question regarding a loan for new home construction. Fit My Money is a web platform with savvy financial tips and professional guides on how to solve various finance-related issues and disruptions.
This post was edited on 1/19/22 at 3:09 am
Posted on 3/21/22 at 11:12 am to 22jctiger22
ARMs were a large part of the issue in the 2008 housing crash. People with too poor credit or too low income for standard mortgages were able to get ARMs, then when interest rates went up so did the ARMs and all those people ended up underwater and unable to pay their mortgages
The banks have no financial incentive to lower your rate (even though they advertise an ARM with that feature), and every incentive to raise your rate
The banks have no financial incentive to lower your rate (even though they advertise an ARM with that feature), and every incentive to raise your rate
This post was edited on 3/21/22 at 11:13 am
Posted on 3/21/22 at 11:22 am to Upperdecker
ARMS themselves are not a problem of 2008 crisis. It was lending to people whose debt to income and credit could not afford ANY loan - regulation now cannot allow that to happen. ARMS today fit some financial goals for people who are also qualified for 30 year fixed.
Posted on 3/21/22 at 12:04 pm to TMFBB21
quote:
ARMS themselves are not a problem of 2008 crisis.
It is universally recognized that ARMs were a significant contributing factor in 2008
quote:
ARMS today fit some financial goals for people who are also qualified for 30 year fixed.
Ok mister mortgage salesman
Edit: he is in fact a mortgage salesman
quote:
New underwriting guidelines put in place after the housing crisis mean that underwriters must take into account a borrower’s ability to repay the mortgage not just at the teaser rate but for the life of the loan, Sharga noted. “That eliminates a lot of the borrowers who got ARMs that they shouldn’t have gotten,” he said.
Underwriters were at fault, not consumers. Underwriters gamed the system to give bad loans to poorly qualified consumers. Those people qualified for the cheese introductory rate and underwriters were more than happy to sign them up. Selling an ARM based on a low introductory rate and qualifying a customer on it vs showing the customer the actual consequences of an ARM loan - interest rate hikes
Also imagine being some shill trying to sell ARM loans when everyone is projecting interest rate hikes for the next two years
This post was edited on 3/21/22 at 12:13 pm
Posted on 3/21/22 at 2:15 pm to Upperdecker
I am a licensed loan officer but previous to this position, I worked on Capital Hill under Dodd with the Dodd Frank regulation of 2008. It is much more complicated than one loan product.
Posted on 5/20/22 at 12:10 pm to 22jctiger22
A construction loan provides the funds needed to complete the home and the borrower is responsible for either paying off the loan in full at the time of 1 year or less repayment or taking out a mortgage to secure permanent financing.
Perhaps you should look at the home renovation loans in your state? So, the fees and costs of the home renovation loan depend on the lending laws of your state...
You really have an overly unrealistic plan, so it's no surprise that they want to give you a loan with the floating rate or 10/1 ARM.
Perhaps you should look at the home renovation loans in your state? So, the fees and costs of the home renovation loan depend on the lending laws of your state...
You really have an overly unrealistic plan, so it's no surprise that they want to give you a loan with the floating rate or 10/1 ARM.
Posted on 5/20/22 at 12:32 pm to 22jctiger22
What you are asking about is a one time close construction loan. It doesn't sound like you'll be in Jumbo territory so that's a plus.
However, I'd consider whether a 1x close is the best option. I know everyone is freaked about rates rising, but I guess you'd have to decide if you think they have much higher to go. We've already bounced off the ceiling multiple times.
Interest-only during the build is pretty standard. I'd consider a 2x close where you do permanent financing upon completion. Locking in a loan that far away is going to be costly.
I sell mortgages but we don't do construction lending. Just some food for thought.
However, I'd consider whether a 1x close is the best option. I know everyone is freaked about rates rising, but I guess you'd have to decide if you think they have much higher to go. We've already bounced off the ceiling multiple times.
Interest-only during the build is pretty standard. I'd consider a 2x close where you do permanent financing upon completion. Locking in a loan that far away is going to be costly.
I sell mortgages but we don't do construction lending. Just some food for thought.
Posted on 8/30/22 at 12:51 pm to 22jctiger22
full disclosure i work for Hancock Bank, you didnt talk to me. what the loan officer tried to tell you is that fixed rates on Jumbo products IE loans over 647k are not attractive at all. The fixed rate on a Jumbo construction loan is close to 5.5% currently. So a 10/1 jumbo arm at 2.625% is a great deal. You dont qualify for a non jumbo fixed rate because your loan is a jumbo until you sell your home. So when you do sell your home the best thing you could do is pay down your loan amount and stay in arm rate until rates come back down and then refinance. wanting a fixed rate. the difference in rate from fixed to arm is a huge differnce at this point on a jumbo product. the 10/1 rate on a non jumbo construction is 5.375% so you can see by having a jumbo loan you are getting a much better arm rate. hope this helps.
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