1% is what I'm used to paying with a conventional loan. Will you have a 20% down or equity when done? If so you might be able to not pay the origination fee if you don't get a loan through Fannie Mae, but rather straight from a local bank that provide their own funds.

Pinktoes,
for ALL closing costs, including origination fee that 4% should cover you fine, it actually seems high to me unless you are buying down your interest rate or there is a higher origination fee for your loan. The origination fee is usually 1%, the rest of the costs would be your prepaids like interest, homeowner's insurance and property taxes (if you have an impound account)as well as the various lender fees and title insurance and escrow fees. For a point of reference on a recent transaction, $365k loan with $8700 in closing costs including prepaid interest, taxes, and insurance. Hope that helps.

Using a bank, probably Wachovia; C-P loan; 20% down or better.

luckymom23: What period of time do we pay the "prepaids" for? Prepaid insurance for 1 year, I'm guessing. Prepaid property taxes and interest for what period of time? Our property taxes are due in the fall for city and county (separately billed). TIA

there are loan origination fees, discount points, title insurance, deed posting fees, and other smaller fees. How many discount points are you paying?

For example, if you have a 1% orgination fee and 2 discount points - that is 3% of 415,000 = $12,450. Then add on the other fees - and I could easily see it running to $16,000.

You could pay fewer discount points but then the interest rate on the loan will be higher.

We had 0 loan origination fee. We simply had a 799.00 closing cost on the construction loan and 899.00 closing cost on the permanant financing. Thats all, nothing else. Everything except escrow was included in this amount.

A loan origination fee is not automatic. Shop around. We were able to get ours threw Central Bank of KY. But also Republic Bank and Peoples Bank offered 0 origination fees.

The worst was Country wide. What cost me 899.00 w/ Central was going to cost $8,000+ with Countrywide. Exact same loan just an origination fee was added.

Pinktoes - for your escrow account, figures 2-3 months reserves for your h'o insurance (depends on what lender requires). For your taxes, they'll want to have at least a two month cushion plus additional months depending on the month your taxes are due. For example, in FL taxes (county - we have no city taxes) are due in November. Right now we are collecting 13 months of taxes. This guarantees that come Nov, you'll have enough in your escrow account to pay the bill.

If you closed in April, first payment was June and taxes due Nov, 8 months would be collected.

This can be very confusing.

sniffdog: no discount points.

charliedawg: wow! thanks for the tip. In loan shopping here I regularly get the EXACT rate on what I shop for, on any given day, to three decimal points. But, I haven't yet asked about fees, so that will be the deciding factor.

jgirl_2007: Thanks! It's been so long since we took out a mortgage I'd forgotten how they do things. Yes, the escrow account needs funds based on months things are due. I'll estimate it that way.

pinktoes,
If you are financing 80% (or less), you shouldn't need an escrow account.

Unless you want the convenience of the bank handling it, you can pay your own taxes and HO ins yourselves.

I know after we closed on our loan I asked the loan officer how much would we need for when we transfered the loan to a 30 year, she told me about $6500. I almost fell over in my chair seeing I just got a cashiers check for $7400 for the closing costs! LOL! The bank did not make us put a down payment down but we did have to get a short term CD for $20,000 since there was not enough equity in the house yet. If we back out they keep the $20,000 but once the loan rolls over they just give it back or we can put it towards the loan.

Money just keeps flying out the door when you build doesn't it! LOL!

Pinktoes,
Sounds like you have gotten most of your questions answered, the prepaid interest is based on your closing date. Since interest on your mortgage is paid in arrears you will pay interest on the loan amount from the day you fund through the end of that month, then you usually start paying on your mortgage the following month. Does that make sense?

luckymom23: So at the rollover from construction to permanent loan they will want only up to 1 month's interest (depending on the day of the month we close on)?

zone8grandma: I hope that's standard practice with all lenders--not requiring me to escrow my taxes and insurance. I'd rather earn interest on that money myself as I save it up over the year, thank you very much! We'll have more than 20% down on it.

Ditto what charliedawg said, SHOP! Especially smaller, local banks who are hungry for loans right now. All of the 800 series fees you see on a good faith estimate are totally negotiable, as they are all strictly income for the bank. Fees like Title insurance and filing fees etc are generally fixed, but not the bank fees.

No way in heck I would pay 4%. Our bank wanted 1% and we were pissed off about that and beat them down to .25%, but we were still unhappy with that, but were running out of time so we settled. SHOP SHOP SHOP, and be sure to ask about ALL fees, not just loan origination.

Yes Pinktoes, at most one month's interest will be collected at closing. For example; if you closed today you would pay interest for the remainder of September and your first payment would be due Nov. 1st which would include a tiny bit of principle and all of October's interest - at least that is how it has always worked for us.

If you do not want an impound account for your taxes and insurance be sure and make that clear to your lender. Also find out how your mortgage lender handles the proof of insurance when they are not paying the bill. We had a regular date with our mortgage co to explain to them that "No, we are not uninsured we pay our own bill" then we would have to get insurance certifications sent to the lender so they wouldn't order their homeowner's policy for us - which was about 3x as expensive as it should have been. It took 3 years for them to finally 'get it'.

I think the term 'origination fee' is getting mixed up with the term 'closing costs'. The origination fee is just one way that the lender makes $ on the loan-it is the % of the loan amount paid as commission. The closing costs would include the origination fee as well as title/escrow fees, bank fees, prepaids etc.

Okay, I'm understanding things better. Looks like the most important thing for us will be to get that origination fee down as low as possible. Two ways: (1) shop around. That I can do. (2) Negotiate with our lender. Really?

cork2win: You "beat them down" to .25% origination fee. I have never felt I could negotiate anything with a bank when I'm on the asking end. So, please tell me how you did that--what did you say to convince them???

We negotiated a lot with our bank. However, we focused on the interest rate. Our loan did not have an origination fee. We also were very upfront that if anything changed with the closing costs when we came to the table, that we would walk. Not everyone can do this, but our contract with our GC was not tied to a certain lender for financing. We also refused to sign the bank's form that stated that our financing was tied to a certain GC. We said that we would sign that form at the conversion of our loan so that they could update the records...but no way at the beginning.

Have you spoken with Suntrust? That's who we used. They've messed up a few things here and there with draws, but the initial process was pretty easy and fair. What I liked about them was that their construction loan program is internal so they were able to offer things like loans over $417K for the typical rates rather than jumbo rates. Not sure if they're still doing that in today's crazy market though.

I disagree with the posters who say that you can get better rates through small, local banks. That is almost never the case in my experience. Wachovia and Suntrust always beat the small-town banks. The reason for this is that the small banks are generally tied to prime during the construction period. If you look at the local banks as well, you will probably find that the takeout financing will be through a W/F or similar. I didn't like the two-step process. Definitely shop them, but I'm really doubtful that they'll come in lower...

pinktoes, that's the way most people feel when they go to a bank which is why the banks feel they can do ANYTHING to you and you'll just take it and shut up and be grateful. You wouldn't believe some of the stories DH and I have heard, especially regarding closings and banks expecting people to pay thousands more than their good faith said due to "unexpected" things. It's mostly crap and nothing but pure profit and greed for the bank. As if making hundreds of thousands of dollars over the next 30 years shouldn't be enough.

Obviously, in order to bargain with a bank, you need to have great credit. Having great credit gives you options, and options are what you need when you want to negotiate. DH and I were shopping 3 banks at the time we were negotiating so we could easily have said "ok, fine, if that's your best offer, we don't want your money and we're going somewhere else". It also made it possible for us to KNOW what was a good offer because we'd done a lot of comparison shopping so we knew what fees were reasonable and which were way out of line. Also, this is a great time to shop banks because home starts are WAY down and they're hungry for business. The key though is being prepared to walk out and starting the process over with another bank... it's just like buying a car. You have to be prepared to walk away in order to get a better deal.

When we got their original Good Faith Estimate, we didn't have to say anything other than "we're not paying a 1% loan origination fee. Make us a better offer" and they did. Although we weren't thrilled with paying the .25% either, we shopped their other fees and they were lower on some and higher on others, but in the end their deal was the best so we took it.

Yes, they have the money you want, but you are a customer they want and you are going to be paying them hundreds of thousands of dollars over 30 years. You have a choice of who you give that money to. Make them aware of that.

And I just wanted to add that I shopped about 10 different lenders, big, small and everything in between. Some of the big lenders we've done business with in the past didn't do construction loans and the ones that did do them were way higher in fees and interest rates and paperwork, or didn't have the same program our small bank did (one closing, construction loan automatically turns over to permanent financing). We would have had to go through all kinds of crap with a bigger lenders. The small bank was the best in all areas... rate, fees, programs and paperwork. I'm sure your mileage will vary depending on your part of the country, but don't rule out your local banks. We have several mortgages for multiple properties and all of them are through small, local banks who gave us the best deals.

What dixie says though about making it clear that you won't pay a penny more at closing than what your GFE states is a great point. Education is your key here. You have to know how these things work and you have to know that your GFE should be very accurate other than perhaps taxes which shouldn't be off that much. Be sure you get your final GFE at least 24 hours before closing so that you have time to review it.

dixiedoodle: I got pretty much the same deal from Wachovia, SunTrust and WashMutual. Local banks were way too expensive. I'll recheck all of them when we're ready to apply because of what you said about the Jumbo loan situation. I wasn't planning to finance as much of it earlier and now I want to hover around Jumbo range.

cork2win: I really appreciate all your explanation. I really didn't know we'd be able to negotiate that much. Fortunately both of our credit ratings are almost at the top and that may give us more leverage. With that, the fact that we have no other debt and loan the land outright it seems to me that we're the kind of risk they'd like to have in their portfolio these days. Can't remember which one of the biggies retains 90-something percent of the loans they originate, but that should make a difference if they know they'll be retaining our loan rather than selling it off asap.

Thanks, guys. I'm feeling better prepared.

We are going through Suntrust. They are not doing good deals with the jumbo loans anymore, their underwriters are screaming over every penny. Good luck!!

Nobody is doing good deals on jumbo loans right now unless you can go with full documentation of your income and assets to qualify.

Pinktoes, you might also want to check if you lender is going to increase your interest rate if you decide you don't want impounds for property tax and insurance. Usually refusing to do impounds adds an eighth to a quarter onto the interest rate (depending on the lender).

Labradoodle brings up a good point. My sis pays her taxes and insurance once a year. She does not escrow because they can't afford the addt'l monthly payt so they pay it w/ their tax refund. They had to pay an addt'l fee to NOT escrow. I'm not sure what it was but I remember her complaining about it.

labradoodlelady: we're gonna do full documentation; that's easy and with erratic/commission income we need to do that anyway so they can get a better idea of our income over time.

charliedawg: I've got to be sure to take it step by step with lenders and ask "What's it gonna cost me to do that?" for non-escrowing the taxes/insur. and, apparently, for everything else.

I do think we'll do better to stay just under Jumbo and we can do that; just have to put more of our own cash in, eventually. I still believe it makes banks nervous, esp. these days, to take on the Jumbos.

We're in a good position for getting a loan, but we sure need to watch the monthly payment as well as those killer origination fees.

$16k in unexpected closing costs require a major reworking of the budget on a $415k+ house?

That sounds like a recipe for financial disaster.

jrldh: Yep! We're real close to the bone because of everything we're trying to do. Want as much of that unexpected $16K to go into the build, or stay in our pockets, as possible. We're working up a close budget for the build and don't want to go over it. That's the budget I'm talking about. Everyone has--or should--have one. Ours is NOT gonna be "oh, whatever it takes."

LOL. I don't know many people who wouldn't be majorly affected by an unexpected SIXTEEN THOUSAND DOLLAR surprise!!

Pinktoes, with regard to the fee for not escrowing taxes and insurance, ask each lender you talk with what the fee is if you pay it separately. The lenders' natural tendency is to absorb that additional cost into the interest rate, which gives you lower closing costs but a higher payment. Especially if you're planning on staying in the house a long time, it might be better to pay the fee upfront, rather than have the higher rate.

By the way, I'd recommend you talk with Countrywide and Indy Mac about their construction loans. Both of them offer the construction to perm financing, and might be good comparisons for your other lenders.

labradoodlelady: Good idea; i might not have thought about that. Will check the 2 lenders you mentioned also. No one who wants to hand over money to me will be out of the loop!

cork2win: Thank you very much! I am not Bill Gates. It's a LOT of money to spring on me at closing. I want no more financial surprises than I have to have. We can only afford to do this project because all our lives we have been careful with every extra $16K we had! LOL!