1 time construction loan rate ?'s

10 years ago

It seems in my area the only option is the 1 step construction loan. We had shopped and pre-qualified before but now that permits are in its time to tie things up. I had previously thought that one lender had a higher rate for the construction period and floated down with a cap but now no one is doing that. (this is 6 months later)

My question:

30-year rates are at 4.125%

Lender 1: Lock in now for the construction at 5.125% and keep that for the duration. Good if interest goes up in the next 6-9 months.

Lender 2: Lock in later, 45 days from close, so for the construction period it is the same 5.125% but you have the chance to lock lower in 6-9 months if rates are lower than that then.

What's everyone's gut saying? I am thinking lock now at 5.125% and not take my chances with the market.

Sort by:Oldest

Comments (9)

MFatt16
Original Author
10 years ago
To clarify, no one floats down with a cap anymore. The second lender floats down but it could be higher, potentially, than the initial rate.
charannthom
10 years ago
My gut would say lender 1. The reasons have less to do with the market itself and more to do with the fact that building is stressful enough as it is without having to worry about rates fluctuating and feeling the need to keep an eye on them throughout the process. I would rather lock in and forget about it... I feel like I would beat myself up less that way.

But I think the general rate trend has been slightly upward anyway... we purchased our current home in October last year at a rate of 3.45%. I personally would lock in now.
Related Discussions
Construction Loan for Southern Indiana build
Q
Comments (9)
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
...See More
Course of Construction loan ?'s
Q
Comments (3)
Generally, I'd not want to insure with both...it complicates any claims--they will fight over who will be paying. Can you start with one, aim to complete within one year, but if you don't make it, at least have a livable area in one year, so that you can just get house insurance and complete it as an extension of your home insurance? Is that an option?
...See More
Questions about frist time home loan
Q
Comments (1)
Hi Becky, Lending Tree does NOT take your info and shop for best rates... they take your info and sell it to the next 4 companies in line to buy it from them, regardless of those company's rates or service specialties. Avoid Lending Tree... they are bad news for the majority of consumers. What you are referring to is known as a "Mortgage Broker." Brokers build a full credit file with you, and then run it (shop it) among a portfolio of different banks that may have the ability to do the type of financing you need. According to your descriptions, you are needing the financing for a new custom home construction project. This is actually 3 different sets of loan transactions; The acquisition of the land, the construction process of the home itself, and the final permanent longterm financing. On smaller projects its frequently best to use a specialty loan program known as a "One-Time-Close" (also known as a "Construction-To-Permanent") program. Your best bet is to ask your builder for referrals to 2 or 3 of his favorite brokers who he's worked with before who specialize in CTP loan programs. If your builder has any experience at all he knows several... but if he'll only REFER one that definitely says something about his experiences with the others. Luck! Dave Donhoff Leverage Planner
...See More
New Construction Home: Pay Cash vs Construction Loan
Q
Comments (4)
Yes to your own RE attorney. Yes to a methodology of lien release tracking. Yes to setting up a construction draw schedule even if you don't have a loan. Your builder should know when he needs draws and design a schedule for you. Planning is everything. Know what you want and stick to it. Strangely enough, once the foundation is dug, a lot of risk diminishes. If there are no rocks or water, your foundation costs drop off. Shop around for other lenders. You only need a construction loan. Not a construction to perm. They are different. It's good to have a line of credit in your back pocket when building. I suggest you explore a home equity line of credit on your current home. If you need it, you have it. If you don't use it, you were prepared. Lenders will love you. They love to lend to people who don't need the money. And, they love lending to people who already own the land. Expect and prepare for cost overruns. Construction lending is high risk and you are lowest level of risk of a high risk endeavor. Make the lenders compete for your business.
...See More
heyo
10 years ago
What are closing costs for each scenario? I ask because we went the one time close route due to closing costs being the same either way. You can always refi right away if rates are down enough to make it worth doing so which you'd basically be doing anyways if you did separate construction and mortgage loans. In the meantime, if rates go up you're sitting pretty and, as mentioned above, with a lot less stress!
MFatt16
Original Author
10 years ago
Closing fees are both right around 10k.
heyo
10 years ago
#1 all the way with a potential refi in the back of your mind
MFatt16
Original Author
10 years ago
Thanks, you are all confirming my gut feeling.
motherof3sons
10 years ago
Ditto #1. We had a construction loan of 3% and finally closed 4 months after we moved in for 2.62% 15 years. Rates seem to be on the rise in our area - a 15 year mortgage is now around 3.25%.
NWHobart
10 years ago
Agree with #1, and if I remember you are in the NW.

If you hapen to be going with the same bank we did for option #1, I want to point out there is a prepayment panalty required if you refinance wihtin the first 5 years of the loan. This wasn't an issue for us but it was a little bit of a surprise. So far they have been excellent and draw requests have been paid within 2 days.

Another point I wanted to make which was a big deal for us is the one time close. This meant that the appraisal was done now on what the future value of the house will be. I'm happy we won't have to worry about whether or not our house will appraise for the value we need it to be 8 months from now. Best of luck to you!
MFatt16
Original Author
10 years ago
Thanks NWHobart. We are going with Homestreet and they do not have a prepayment penalty. It is good to know that someone else is happy with the one time close. I just want to get on with everything!!! I really appreciate the comments, I will have many more posts as we get going I am sure.

1 time construction loan rate ?'s

Comments (9)

MFatt16
Original Author

charannthom

Related Discussions

heyo

MFatt16
Original Author

heyo

MFatt16
Original Author

motherof3sons

NWHobart

MFatt16
Original Author

COMPANY

BUSINESS SERVICES

GET HELP

CONNECT WITH US

1 time construction loan rate ?'s

Comments (9)

MFatt16Original Author

charannthom

Related Discussions

heyo

MFatt16Original Author

heyo

MFatt16Original Author

motherof3sons

NWHobart

MFatt16Original Author

COMPANY

BUSINESS SERVICES

GET HELP

CONNECT WITH US

MFatt16
Original Author

MFatt16
Original Author

MFatt16
Original Author

MFatt16
Original Author