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Construction loan question
Posted on 4/7/16 at 1:45 pm
Posted on 4/7/16 at 1:45 pm
I'm in the process of shopping around for construction loans and trying to get an understanding of how the process works and what all of the lingo means. One of the banks recently sent me this:
"The construction program we have is for 12 Months, Interest only, 4.25% with a 1.50% Origination Fee with a credit score of 700+, up to 80% Loan to value. We also offer permanent in-house financing at the same rate for 12 Years with a 30Yr. Amortization with a $100.00 Origination Fee."
What does the last sentence mean?...Permanent financing at the same rate (4.25%) for 12 years with a 30 year amortization
Also, any recommendations for banks in the new orleans area would be greatly appreciated. TIA
"The construction program we have is for 12 Months, Interest only, 4.25% with a 1.50% Origination Fee with a credit score of 700+, up to 80% Loan to value. We also offer permanent in-house financing at the same rate for 12 Years with a 30Yr. Amortization with a $100.00 Origination Fee."
What does the last sentence mean?...Permanent financing at the same rate (4.25%) for 12 years with a 30 year amortization
Also, any recommendations for banks in the new orleans area would be greatly appreciated. TIA
3
Posted on 4/7/16 at 3:07 pm to Neil Caffrey
I built 2 years ago in the Baton Rouge area. I used the one time close loan Whitney bank was offering. Basically it's a construction loan and a mortgage all rolled in to one. I would call them again. They were very helpful.
I grasped the terms long enough to survive the process and then drank all those memories away. Easiest thing for me was to have the loan officers / bankers from the places we shopped just draw it out in plain numbers for me. Basically if construction cost is $x then I have to pay $y and $z in fees.
I grasped the terms long enough to survive the process and then drank all those memories away. Easiest thing for me was to have the loan officers / bankers from the places we shopped just draw it out in plain numbers for me. Basically if construction cost is $x then I have to pay $y and $z in fees.
Posted on 4/7/16 at 3:41 pm to Neil Caffrey
(no message)
This post was edited on 6/25/17 at 7:33 pm
Posted on 4/7/16 at 4:18 pm to man117
Currently talking to Resource Bank, First American Bank, and Bank of New Orleans. I'll look into Gulf Coast and Whitney.
Also, on another note, one of the banks asked me if I had cash to start construction (Approx $50K in working capital). Is this typical if you contract yourself? Shouldn't this be the responsibility of each of my subs and then I start paying the subs after the first draw?
Also, on another note, one of the banks asked me if I had cash to start construction (Approx $50K in working capital). Is this typical if you contract yourself? Shouldn't this be the responsibility of each of my subs and then I start paying the subs after the first draw?
Posted on 4/7/16 at 4:49 pm to Neil Caffrey
quote:
Also, on another note, one of the banks asked me if I had cash to start construction (Approx $50K in working capital). Is this typical if you contract yourself? Shouldn't this be the responsibility of each of my subs and then I start paying the subs after the first draw?
Not always. Back when I was building houses I got 50% cost of materials prior to draws up-front. But I was small and cheap and could have much money tied up in your house.
Posted on 4/7/16 at 5:28 pm to Neil Caffrey
Typically you will pay a downpayment of 10%, 15%, 20% whatever. and pay interest only on the loan until construction is complete 1yr or less time frame.
After this you will refinance with the same bank at the same rate or if rates get better you can usually float down. (depending on the bank, or lender) Most banks/lenders do not charge a origination/ fees for this refinance, their insensitive on getting you to stay with them and not refinance with someone else.(this is where the name 1x close construction comes in). Looks like your banks 1xclose construction loan after construction is done with a 12 year arm @ 4.25%. This means your rate can/will fluctuate up or down after 12 years. Sounds risky or scary, but the average homebuyer stays in their house for 7 years anyways.
They are giving you a decent offer, but you can probably get better terms with somebody like Whitney mentioned above.
After this you will refinance with the same bank at the same rate or if rates get better you can usually float down. (depending on the bank, or lender) Most banks/lenders do not charge a origination/ fees for this refinance, their insensitive on getting you to stay with them and not refinance with someone else.(this is where the name 1x close construction comes in). Looks like your banks 1xclose construction loan after construction is done with a 12 year arm @ 4.25%. This means your rate can/will fluctuate up or down after 12 years. Sounds risky or scary, but the average homebuyer stays in their house for 7 years anyways.
They are giving you a decent offer, but you can probably get better terms with somebody like Whitney mentioned above.
Posted on 4/7/16 at 5:35 pm to HYDRebs
I'm a contractor in GNO. Most of my customers choose either Whitney or Home bank. They usually have the best terms. If you don't want to take a chance on rates rising by the time you finish construction, try Fifth District. They have a one time close with a rate lock at time of closing and usually have pretty good rates.
Good luck.
Good luck.
Posted on 4/7/16 at 6:55 pm to HYDRebs
(no message)
This post was edited on 6/25/17 at 7:33 pm
Posted on 4/8/16 at 9:00 am to man117
Our construction loan with Whitney was a 1 year ARM that modified to a 30 year fixed at whatever current rate happened to be. Rates ended up dipping when we modified so we ended up great but there is the variability of what you'll be locked in to when you do modify.
Posted on 4/8/16 at 9:57 am to BeerMoney
All you guys that used Whitney, did you contract the house yourself?
If you contracted the house yourself, were you responsible for the initial working capital? Or did the bank or the subs put up the initial capital?
If you contracted the house yourself, were you responsible for the initial working capital? Or did the bank or the subs put up the initial capital?
Posted on 4/8/16 at 10:44 am to Neil Caffrey
I went with Resource's 5.25% (fixed) and .5% origination fee for my construction loan. Resource has been easy to deal with and once we added it all up they had the cheapest closing costs compared to Whitney, the other bank we looked at.
I'm using another company to shop my 30yr mortgage out. The good news is that interest rates for 30yr mortgages are going to be pretty low ( LINK) when we finish our house up in the next 4 months or so. (knock on wood).
I'm using another company to shop my 30yr mortgage out. The good news is that interest rates for 30yr mortgages are going to be pretty low ( LINK) when we finish our house up in the next 4 months or so. (knock on wood).
Posted on 4/8/16 at 10:54 am to Neil Caffrey
first my disclaimer I work for Whitney Bank. Now let me shoot you the hard truth. when self contracting a house we require 20% down and 20% in reserves. You can use retirement funds for 10% of the reserves. what this means is you need to be liquid 30% of you build cost plus your lot or land cost. If you post an email address I will send you some information and help you out. Self contracting a house construction is very hard and that's why we want the large amount of reserves.
Posted on 4/8/16 at 1:57 pm to hawkeye007
I self contracted and this is why they want you to have money in hand.
You normally get a certain number of draws from a bank. This is the number of times you receive money from the bank for having a certain amount of work done. In my case it was 6 if I remember right. When you request a draw the bank verifies the % of completion and will give you that amount. The process can take several days.
Subcontractors want to be paid the minute they are finished with the project. The form crew, concrete finishers, sheet rock guys, electricians, plumbers, brick layers etc. usually want their money now or the next day or two at most. You have to use your reserve funds to pay these people and repay your reserve funds when you get a draw from the bank.
Generally you will spend more than the borrowed sum because of plan changes and this is also paid by the reserve fund.
If you hire a contractor turnkey often he is paying the subs out of his pocket until a draw is done. he charges you a certain % for that service.
You can save money by self contracting, but be ready to answer questions and make quick decisions. You will need to visit the job site twice a day. You will also have to schedule the subs and each needs a certain amount of lead time.
You normally get a certain number of draws from a bank. This is the number of times you receive money from the bank for having a certain amount of work done. In my case it was 6 if I remember right. When you request a draw the bank verifies the % of completion and will give you that amount. The process can take several days.
Subcontractors want to be paid the minute they are finished with the project. The form crew, concrete finishers, sheet rock guys, electricians, plumbers, brick layers etc. usually want their money now or the next day or two at most. You have to use your reserve funds to pay these people and repay your reserve funds when you get a draw from the bank.
Generally you will spend more than the borrowed sum because of plan changes and this is also paid by the reserve fund.
If you hire a contractor turnkey often he is paying the subs out of his pocket until a draw is done. he charges you a certain % for that service.
You can save money by self contracting, but be ready to answer questions and make quick decisions. You will need to visit the job site twice a day. You will also have to schedule the subs and each needs a certain amount of lead time.
This post was edited on 4/8/16 at 2:04 pm
Posted on 4/8/16 at 2:17 pm to rodnreel
quote:
You normally get a certain number of draws from a bank. This is the number of times you receive money from the bank for having a certain amount of work done. In my case it was 6 if I remember right. When you request a draw the bank verifies the % of completion and will give you that amount. The process can take several days.
I've heard of banks doing it like that but the bank I'm doing my construction loan through doesn't operate like that. She gave me the draw schedule sheet but told me to call or email any time and she would transfer the money from the loan to my construction checking account. Whenever I see a sub is almost done or if I get an invoice for material, I email the bank and get a draw for that amount. I also didn't have to put anything down. I did a construction loan and used the first draw to pay off the land I bought to build the house on.
Posted on 4/8/16 at 2:37 pm to Neil Caffrey
quote:
l if you contract yourself? Shouldn't this be the responsibility of each of my subs and then I start paying the subs after the first draw?
you sound like you're in for a world of pain.
Posted on 4/8/16 at 2:57 pm to Neil Caffrey
quote:
Is this typical if you contract yourself? Shouldn't this be the responsibility of each of my subs and then I start paying the subs after the first draw?
I setup an account with the lumber company for my materials which is setup as net 30. I paid framers for forming, digging and finishing after the slab was finished.The plumber sent me an invoice after he was done with his rough-in (the plumbing in the slab). The concrete company sent me an invoice that was due 30 days after they sent it. So, essentially, I didn't pay anything out of the construction account until after I poured my slab.
Posted on 4/8/16 at 7:40 pm to JonTheTigerFan
I contracted myself and used Iberia. Their terms were fantastic - 4.75 during interest only 1 year and 3.75 7 year arm after that (30 year am). Chris Lebato was my banker, dude got shite done.
Don't contract yourself, it's awful. Pay someone else to do it and save your sanity.
Don't contract yourself, it's awful. Pay someone else to do it and save your sanity.
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