Our lender decided to give us only 65% LTV at the last minute instead of 75%. We had already begun construction and had no option but to bring the extra money to closing. It really put us in a pinch situation having to deplete our savings coushion. We were not happy about it at all and I felt extremely dissapointed in the bank for doing this do us after months of working together on the loan process. I think all the banks are still very careful about lending even to the most qualified borrowers.

Have you tried credit unions and small local banks?

That's why I build on a pay as you go cash basis...

I don't know if their rates are reasonable, but we used Wells Fargo several years ago.

Same thing happened to us. We had agreed to 5% and at the last minute they changed it to 6%. I was pissed and would never use that bank again or recommend them. We went ahead with them b/c at this point it would have delayed us another 6-8 weeks.

Geeze, if you can't believe the word of a bankster, who can you believe!

(It's not personal. Just SOP.)

Getting the construction loan was the most painful part of the process for us. We started talking to banks in the spring, and some of the banks were quoting 6.5%. All of the banks seemed to come to the same amount for the loan - they must use similar formulas - and we had to come up with the difference. It ended up being about 35% down (which included paying off tha land value). We ended up with a prime (3.25) loan on construction, one time close, and a 7 year jumbo arm when we convert to permanent. We have perfect credit, and had to jump through hoops to get this deal - and a lot more cash than we anticipated - I was wondering if the construction loan market had eased since we worked this deal, as it was very very hard to get.

I am a mortgage broker and can say one thing about rate changes ... until your rate has been Locked, your rate is just a quote and you are "floating" with the market. Rates change every single day, and lately multiple times during a day. Ask to verify that you have been locked or you can even ask for a copy of your lock confirmation.

Also about program changes ... with what has been going on in the economy, loan programs are changing all of the time. Sometimes you can still get the old program if you already had your application in. Sometimes you cannot get it and either have to comply with the new guidelines or look elsewhere. This is happening on the mortgage broker side as well as on the retail side. For example, if a bank changes their minimum credit score, I may have to find another home for that loan.

Construction loans are one of the riskiest loans in the industry, so guidelines have really been tightened there even more than regular financing. As a mortgage broker, I used to be able to do construction loans and loans for owner-builders as well. As it stands now, I had to go outside to a local bank to get my own loan done, LOL !!!

I highly recommend calling around to the local banks (local meaning within your state, not just within your town) ... I found many in our area that had some great construction loans still available. Some of the bigger banks that had some good programs in the last month in our area were Wells Fargo, BB&T, RBC Centura, Suntrust. I found many other smaller banks that had some loan options as well. We ended up going with Wells Fargo on a 7/1 ARM (fixed for 7 years then adjustable) with a rate down in the 3's. It will be 5.75% during the construction period. That is higher than some of the other banks that allowed the regular rate also during the construction period, but we had other reasons for using them and were not as worried about the interest that isn't even paid on the entire amount until the very end of the construction period. For example, if you are building at a cost of $417,000, and have already drawn the entire amount, that will only be $2000/month interest only at 5.75%. All of the months previous to that are less because you haven't drawn as much. And then you convert to your permanent financing.

If anyone worries about the story they are getting from the bank, feel free to contact me thru My Page and I will give you free advise. I will not be able to help you with your construction loan. I can only do permanent financing and only in the state of NC.

Thanks for the feedback.

Angela1234, thank you for the detailed response and generous offer for guidance.

Another notch in the experience belt; we didn't realize the depth of the problems and the extra complexities of the construction financing business. I am mostly concerned with the less than clear and sometimes contradictory language in the loan documents, but I guess that's how lawyers stay in business!

Good luck to all those building!

We didn't have any trouble getting a construction loan from a local bank, at 5.75%, but getting the mortgage turned into a nightmare. We were nearly 2 months later closing than we were supposed to be, couldn't get a straight story out of anybody, one excuse after another. Cost us a couple thousand extra in interest on the construction loan OUT OF OUR POCKET. Ugh. Plus, we had to get a new survey drawn at the last minute that we had not budgeted for. Added to our own mis-management of putting house expenses on our credit cards during the summer, so that even though they were being paid off to zero every month, we had high balances when they pulled our credit report...which caused us to not be able to borrow as much money as we had intended, and we are about BROKE. LOL

The only good part is that we're very happy with our rate (4.125% for 30 years) and our house/land appraised quite a bit higher than what our building costs were, so we have a lot of equity on the front end. :-)

V

I'm a custom builder, renovator, mortgage manager/investor.

Whenever possible, it's best to finance the build some way other than through a construction loan. The rates are much higher than other mortgages, there are a number of inspections with heavy fees each time and sometimes a running disagreement between lender and borrower about just how much as been finished and exactly what the draw should be. In the wake, I've had builds delayed and cheques from the owners bouncing like rubber balls