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Building a Home

Good time for building, bad time for loan

15 years ago

Was browsing the rates today and they are steadily climbing again. Argghhh! Luckily we have built within our means, but come on. Where are those 5.8% interest rates I knew and love! :) Two months till house is suppose to be completed. One more month before we can lock in for financing. (Just to be sure the house is finished when they say it will be)

Anyone else noticing this?

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Comments (5)

shelly_k
15 years ago
Yes, we were just at the bank today and she said they are steadily rising. We break ground in a few weeks and were fortunate to lock in our construction loan which will automatically transfer to a 10 year ARM at 5.25%. I think they went up the week after we locked in. My DH is an investment advisor and thinks the rates will continue to climb for several years to come. Yuck!!
plh71
15 years ago
The way it works is fairly straight forward = as interest rates rise, the price of typical homes will have to move downward. Unfortunately the supply side of real estate is much slower to react/change than the demand side. Right now there are so many spec homes in most areas that if you are trying to finance new construction, the market values of custom homes are often coming up less than the cost to build them. Until things stabilize it is going to be a rocky road.
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This question is a very popular one these days. :) Although still low, interest rates are on the rise again. You could always lock in now with a float down option. That way if rates go down, you can get the new lower rate. There are usually fees associated with this (you may pay a half a point or something) but could save thousands in the end. We refi'd our new house (and locked in two months ago). I got my rate on the LAST DAY it was that low (4.75 fixed 30-yr). Sixty days later, rates are hovering in the mid 5's. With rates this volatile, I wouldn't chance what they COULD be at the end of your construction period over a year from now. HTH
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Our bank, which is a smaller, but stable bank has changed their rules 3 times in last 4-5 months. I have been waiting on quotes for over 6 weeks now that keep pushing us back. Even though we wouldn't fall into the subprime, buy it now above our means group, (we have scores over 750, decent income, have more than the 20% down,) they are now looking for proof of reserve for overage ~%10, as they are adamant there will be no money available to us, for refinance after completion. Keep in mind this is for a one close construction loan. My banker understood my being upset about having to have use my 401k as proof, we have been and are a long time client of the bank, and I feel as even though we did everything right by buying the land first and paying it off, we are getting the hard time becuase of others lack of responsibility and integrity. Two years ago when we bought the land, it was about as easy as can be, at least 25% down, did all the paperwrok and closed in 3 weeks. Times they are a changing. The banker agreed that in theory they are not looking for 20% in that case but really 30%, and if that was the case why wouldn't we just put the 30% down if we had it available. Also it is calculated by the lower amount of either what we are asking for or what it is appraised at, so even though I will be doing some of the work, and a family member and I framing, I still need to submit quotes to show all of that in order to get 75-80% financing. In the end if I defaulted the day I got my CO the bank would own the house at 65-70% of today's true appraised value right off the bat. Thus they are going back to extremely low risk lending. Most other banks in the area have cut their construction loan programs, and I know of 2 people more than 50% through a renovation through home equity, where their home equity got cut, and there is not money to finish. These are not deliquent payers, in fact one had been in their house for 8 years no credit issues, and were doing an addition. It may sound ludicrous, and we were told we were fine everytime even as they changed the rules, but I see that it will affect everyone. I also have seen contractor give higher prices in order to make up for possible slowdowns, while I have seen others give fair prices to keep themselves going.
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heimert
15 years ago
Although the problem here is that the credit crunch is a large part of the reason why construction is cheaper now. Banks are so gun shy they're just not lending, or at ridiculous rates.
neff2k
Original Author
15 years ago
Actually I am starting to believe the big guy upstairs reads these forums :) (Wonder what his screen name is lol) Rates are going down this week!
breakingground08
15 years ago
Diddo! We are due to break ground in about 2 weeks and have had a hell of a time getting our loan. We ended up getting an iterim (sp?) loan because the one time close was nearly impossible for a new construction. We own our land free and clear yet all banks around here were still asking for 20% down. Our loan is only 132K our land value is $28k. We are building a modest home but our dream home none the less...at times I felt like giving in and buying a home but we just couldnt find the right one. My builder has 3 custom homes that he has been unable to sell since Jan. 08 , this just didnt look good to a lot of banks. Then on top of that we are so young (23 and 26) that our credit rating (about 703) was okay but the history just wasnt long enough. We started our loan process in April and have been strung along by the "3 to 5 business days" line since then. It finally looks like we are going to close though so we are pretty excited. We are ending up with 6 percent interest on a 30 year fixed loan through FHA. However, if we end up with atleast 20% equity come final appraisal then we will end up with a conventianol loan.

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