HoosierBred, I will let you know we just went through this entire process about 2 months ago, but we are located in Central Ohio. We went through First Federal of Lakewood, but I think they only service Ohio. It looks like you are going with local banks which from what we have learned is the best route because they offer the most competative rates! Our bank is giving us 1 year to complete our build, we closed on the loan on the 23rd of December. We ended up with a rate of 3.39% and that is during the build and will be our final rate after the home is complete. We wanted to get out of PMI with 10% down so they broke our loan into 2- which is 80/10 thats saving us 300 dollars a month on PMI. With our bank we did have to have a purchase agreement signed and the builder was involved with the financing because they had to have the floor plans and costs and upgrades so they could do a paper appraisal (this was a one time close.) The appraiser actually went to our builders model to see the finishes and the quality of build and our appraisal came in 57k over what we are paying for the home including land. Now also what I have found out is many places charge a higher interest rate during the build sometimes 5-6% because you are paying interest only during the build, and then will lock you in at what ever the current rate is at the completion of the home. I do suggest taking a look at many places and finding out how their programs are structured and then once you find one that works best for you then doing the application! We did look into farm credit, but their rates were higher thank FFL, and they required 20-30% down with a back end DTI of 36% and with our current car leases we were 3% away from that mark. As well we had 20-30% down but we wanted to set asside a bubble for overages and we are also wanting to put an inground pool in and didn't want to finance that portion because a pool really doesn't add much value, other than pleasure. Hope this helps some (sorry I am not in Southern IN) -Clayton

Red flags abound: - A newly built house, even a modular, isn't likely to be less expensive than an existing house (much less a "foreclosed shack"). I think you're using some fuzzy math here; for example, you may have underestimated costs in some places. The world just doesn't work this way. - If the FHA people won't loan you any more than the house + 10K, you shouldn't try to stretch yourself farther. Borrowing as much as the bank says you can borrow typically ends with you being house poor ... and you're talking about borrowing more than they say you can afford. - When you talk to the bank, you will have to disclose any other loans you're carrying. If you're doing an owner-finance deal, you must disclose it. That will change your finances and very possibly decrease the amount they're willing to loan you. - What you don't say speaks volumes: You don't say how much cash you have to put down. If the answer is "nothing much", you really can't move forward on this project. My best suggestion: Save. Work, scrimp and save, and then come back and buy the land outright in a couple years. THEN you'll be ready to build the house, and -- yes -- it will still be available. Once-in-a-lifetime deals aren't real.

Some other important questions to ask ..... Is there a penalty for paying MORE than the minimum scheduled payment? Can paying more than the minimum lower your total long-term costs? How fast are you allowed to pay the amount back without penalties? Getting double what you were looking for would be nice, as that would initially make your payments worry free (since you have twice what you need, just leave a ton of it in the bank) and it also makes for a good safety net in case of minor or possibly major cost overruns ... (wife suddenly decides that she wants to splurge on a nice hardwood floor, which is a good idea in the building stages since it's hard to do it later.... or perhaps you decided to upgrade the siding or fencing or put in a pool in the back yard, ect ...) Even so, being able to make larger payments or extra payments helps to knock down the principle of the loan, so that your interest payments are lowered. The problem for the bank is, that if the interest payments get lowered, they get a LOT less money, so some of them arrange for penalties that you'ld have to pay for making early or extra payments.

I have a one-step Jumbo construction loan (one set of closing costs). The loan was for the land PLUS the cost of construction for the house. I'm currently paying 6% interest-only during the construction period. When it's done (hopefully in about two months) it will automatically roll over into a permanent mortgage. My permanent rate was set at 6.25%, however, with mortgage rates falling I have a call into my bank to get a lower permanent rate. Here in Washington, rates are averaging 4.875% (non-construction).