I think 1% is pretty standard. What it boils down to, is that is how the bank makes money. In many cases, they will sell the loan before any mortgage payment is made - the loan origination fee is how the bank makes money for making the loan. (if they sell the mortgage before the first payment, they don't make any money from interest)

I should have mentioned that this is a portfolio loan, so will not be sold. Will stay in house for the length of the loan.

1% is what I've always heard. It's not much different than the idea that a GC charges the same percentage on a $400,000 house versus same floor plan with an extra $100,000 in upgrades. He makes more total on the $500,000 version. Or a Realtor percentage being higher on a $400,000 house versus $200,000 even if in this market they both sell in 2 weeks.

Think of it as the bank can only loan out so much money at a time. They have to sell the loans on the secondary market to clear those funds up. So if the bank only has 2 million in operating capital to loan at a time, they can fund (1) 2 million dollar loan, (4) $500,000 loans, or (10) $200,000 loans. Assuming all the loans take the same amount of time before being sold, the bank would be more profitable loaning $200,000 10 times if each was charged the same set fee.

Your credit score is what qualifies you to get the loan in the first place and determines your rate for the next 30 years. The bank actually does make money when they sell your loan also. But if you think about the amount of work the lender is doing and the hours put into the job, $4,000 is not much.

I was typing while you were. So a portfolio loan makes my 2nd paragraph even more relevant!

I guess I am not seeing a lot of work on their end to justify $4k. But your first 2 paragraphs are a way of looking at it that I had not thought of that does help me see it a little differently. I still feel like we are getting robbed at this rate. LOL.

Well I mean, banks aren't really known for being in it for *our* best interest. No pun intended.

This is along the same concept as "why do they charge shipping based on the dollar amount of the purchase rather than the size/weight of the item?" A simple answer is "because they can."

You're right that it's the same amount of work. But that's not their only consideration as described above.

mammabear-you would be surprised about the amount of work involved! First of all the lender may be commission based. Think of the work to talk with 3 customers, run credit, email back and forth for the documents the customer hasn't gotten them, analyze those documents, etc....all for only one of those customers to follow through with loan docs. Then every time they have to write a check, they have more paperwork. Not to mention a bunch of phone calls during the next year. Then compare Their hourly rate for a professional level position (most loan officers have college degrees) to the hourly rate you will pay for so much of the (sometimes unskilled) labor on your home! Doesn't make it any more fun to pay $2,000, $4,000, or $6,000 for an origination fee though! Hopefully you aren't building in one of those zipcodes that come with higher labor rates that the neighboring zipcode....that would drive me mad!

We paid 1% on our construction loan too and we borrowed more then that amount. Tried to negotiate it but they were firm. However, our rate was phenomenal and it was a one time close, so it converts to a fixed rate term after construction, so we won't have to get another loan with more fees. That 1% covers all the inspections and everything for the draws too.

Good luck with your financing.

.5% here. Haven't seen the whole docs to what that covers but it was relevant for the value asked for. I can bring some cash in if needed but the final mortgage number is what you want to match. Mine also covers the conversion to permanent at least partially. Neighborhood bank

Our loan origination cost was $200 for a $525k construction loan through a local bank. Yes, $200. The downside is that they did not have the ability to do a construction to perm loan at a good rate. We had to get our perm loan once we got our final inspection. We paid around $2700 for the final mortgage origination fee.

Okay, I am calming down a bit after reading these numbers. I guess I will give them the benefit of the doubt.

What sort of rates are you seeing for the permanent loans (if they are recent loans)? We got a 30-year 4.75% 3-year ARM. Would prefer a fixed rate, but couldn't get our local bank to agree due to rising rates on the horizon.

That seems pretty high. A quick look has 3.75% as the fixed 30, and 3.25% as 5/1. We have been advised by lots of people to do 10/1 ARM as most people are out of their house by 10 years. Rates are up but not much

We got a 3.125% 15year fixed, jumbo mortgage too. Closed June. That was fixed interest only Construction then coverts to to fixed mortgage, same rate. Local Bank too.

You guys are getting low fixed rates on construction to fixed mortgage loans? We are not able to get a loan that will sell on the secondary market because most of our income is self-employment income and also there are not a lot of good comparable properties in the area for appraisal purposes. Maybe that is the reason ours are higher..... However, our lender also said secondary market loans are not able to be sold unless they have seasoned for at least a year.

Ours was a local bank that has their own portfolio loan program. Great rate and they will service it. We were self employed too but showed income to Uncle Sam. They went like 60 miles away for comps too!!! Or else we would have never been able to without like 60% down....ouch

mommabearof5, are you using one of the big box banks or a smaller regional bank? Some of the answers you have been provided by the LO don't make sense. Please compare construction loans between banks (in the area and out of the area). The fees and rates vary from lender to lender - and your lender is on the high side with both a high rate and higher fee. There are lenders that specialize in construction perm loans.

I was perfectly fine with your 1% origination fee. But I would be drawing the line at the 4.75% 3 year arm. Interest rates have gone up in the last year. They are projected to go up again. What are the additional details on your arm? Prime + x%? Maximum increase?

You are only borrowing $400,000. That is not even a jumbo loan. I am very risk tolerant and have had arm loans myself. But what are you going to do in 3 years when your interest rate raises 1%....then 1% the year after that? I don’t feel very many people should have ARM loans. ARMS were also a part of the reason for the housing crises. And please do not think your payment won’t go up on year 3. Nobody is projecting interest rates to stay this low for much longer.

VA Construction Loan= ZERO I’m a Disabled Vet.

Pensacola-Most VA loans actually have a 2.15% "funding fee". If you are receiving disability from your military service, you are probably on the small exempt list.

Correct I’m exempt.

Okay, so today after reading the posts in this thread about interest rates, I called another bank we have a few mortgages with (rentals) to inquire. They said they offer a 30 yr fixed on a construction to mortgage loan at 4.0%. We called our bank we have been working with to this point and put the brakes on things until we talk to the second bank tomorrow. That sounds much more appealing. Will slow us down a little to change banks at this point, but the savings if this works out will be significant in the long run. I agree that is would seem ARMs are only going up in the next 20 years. I am usually such a researcher, but I embarrassingly didn't research much beyond what our local bank told us about rates. Thanks for all the advice and info!! To be continued......

UPDATE! I took all our financial info to another local bank and got a call late Friday that we will qualify for 4% fixed for 30 years portfolio loan with them. :o) Oh, and their closing costs are about half of the other bank. Boy am I grateful for the input here. I had ruled out a good fixed rate mortgage. We were literally hours from signing everything with the other bank, but this is so much better. Thanks for all the input - if the first bank hadn't quoted us such high closing costs, we would have just signed and moved forward without me even coming here to find out we could probably get a better rate elsewhere. Thanks again!!