Soon-to-be Owner-Builder needs some financial advice!!!

16 years ago

Here's some background info before I pose the question(s):

My wife and I currently own a home outright with a $0 mortgage which we are presently using as collateral against our NEW lot we purchased last August. We used a local bank for the lot purchase. My wife wants to just go ahead and keep using the local bank for our construction-to-mortgage loan. I say that we should shop around and see who would give us the best deal . Who is right? If I am, who would be some good banks that are O-B friendly?

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Comments (6)

craftsman_lodge
16 years ago
If you're using your current home as collateral, as long as you don't go above 80% loan to value, I don't think any bank cares if you take the money and go to Vegas with it.

I'm not a banker and just guessing here, but an Owner/builder friendly bank would be one providing construction financing with only the land as collateral, which would be a higher risk.
dixiedoodle
16 years ago
This is pretty much a no-brainer. Obviously, you need to shop around before making such a large decision. Your local bank may well be the best offering...or they could have the worst offerings. Why does your wife want to keep this relationship without examining other options? Just for convenience? We are not owner-building, so I don't know who has the best rates and easiest approval processes for this method. Just as an aside...if you (or your wife) would be okay with not shopping around for your loan, will this be your approach throughout the entire project? You would get bids, quotes, etc from multiple suppliers and subs during your build, correct? Well, how is this any different than looking for a mortgage? Good Luck.
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skagit_goat_man_
16 years ago
If you are asking us to decide if either your wife is right and you wrong or you are right and she's wrong I think you'd better post this on the Dr.Phil forum!:) We got good faith estimates before getting a loan for the land by refinancing our paid off home. The bank we used did not have a branch in our county. 8 months later when we got good faith estimates for the construction to mortgage loan the same bank still had the best deal. For what the loan will really cost you over its term it seems only prudent to check around. But I am NOT saying your wife is wrong. Tom
bj_inatlanta
16 years ago
You'll need to call a number of banks and ask if they make CP loans to owner-builders. Not all banks make construction loans anyway. So, you'll weed some out quickly. Once I found the ones who do, by phone, I asked for someone in their mortgage lending division who has experience with construction loans. It's a whole different product than regular mortgages.

The reason you want a seasoned person is that your lender can provide you with invaluable, free consulting information about the process. Here in Atlanta, GA, I found two experienced lenders and chose the more patient one who has given me loads of help. Most of them just wanted to quickly quote me a rate and move on; just salespeople. There are only about 10 of the big nationwide banks that do construction lending.

Your situation as OB is viewed by banks as being higher risk. But all lenders will bring your land into the loan (they wouldn't want to lend money on land they have no claim to.) So, you might do better with the bank that already has the loan on your land. Might not. It would be my first stop.
dixiedoodle
16 years ago
We used one bank for our lot loan. When we were ready to build, we rolled what we still owed on our lot into our construction-perm loan with a different bank. The local bank that we used for our lot loan wasn't even close to competitive for the CP loan. In fact, a lot of small, local banks advertise that they do CP loans when in fact they partner with a larger bank (mortgage company) who then holds the note at conversion. In our case the small bank would administer the funds and serve as the inspector during the construction period, and then at conversion Wells Fargo would take over the note. As I told them, why would I pay more to use my community bank than I would pay to just use WF from the very start (we didn't actually use WF)? Makes no sense! Definitely an area where it pays to do your research...
bj_inatlanta
16 years ago
We had a similar finding as dixiedoodle as to the local banks, which I mistakenly thought would give us a better rate. The best local bank rate we found at the time was 2% above prime. The big nationwide banks were at 1/2% below prime. (That's during the construction loan period.) Big difference.

Another huge surprise: I have periodically rate-shopped the big banks, at least 3 different ones all on the same day, and they've quoted me the exact same rate, to THREE decimal points. I asked a retired bank president how that could be, since I'd always been told to rate-shop. He said "There are few secrets in the Atlanta banking community." I assume that would apply in large cities elsewhere. Their secret-shoppers at work?

Soon-to-be Owner-Builder needs some financial advice!!!

Comments (6)

craftsman_lodge

dixiedoodle

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