I'm no expert but based on the fact that mortgage rates are currently at near historic lows and the government is pumping billions of dollars of new money into the economy (all those stimulus package bailouts), I think we're going to start seeing inflation VERY soon - double digit inflation in fact. If so, mortgage loan rates will rise with inflation. My personal suspicion is that your banker also foresees inflation coming and he doesn't want you to lock in today's low rates by getting a one-time close loan because such loans are very tough on the lenders. Your banker may look for the "best rate" available for you when your construction is done, but I strongly suspect that "best rate" won't be nearly as good as what you can lock in right now with a one-time close. Keep in mind that your loan is a business transaction for the bank. The bank wants to make money off of it and your banker has the bank's best interests at heart, not yours. As for possible over-runs in costs, if you're doing a "fixed price build", the only cost over-runs should be from "change orders" and I highly recommend paying for any and all change orders "out of pocket." That is one sure-fired way to keep yourself from going overboard on changes. LOL!

I am sorry for your trouble. I am from a rural area and what live_wire_oak says is true--discounted sales are comps. In my rural area, high end houses are always worth less than they cost to build because there aren't many people that can afford to buy a high end house and those that can build their own. When the people who build these high end houses leave, the houses are sold at what you may think is a very discounted prices but which is really the FMV in a rural economy, even when the economy is good. Banks, especially now, have to look at market value in the area, not cost, when making their loans. I can feel your pain because you should have been told this at the beginning, not the end. You need to appeal the appraisal, but you are correct that it will be difficult because appraisers have taken a lot of the blame for the current mortgage crisis and are now being more careful than they used to be. I would also investigate whether you have any type of claim against the original appraiser--your reliance on his appraisal has harmed you.

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!

We had a closing on the interim construction portion and will have a closing on the final mortgage. I've read pros and cons to both methods, but we didn't have a choice anyway as the local banks and credit unions here only offer two closings. We also had the option to either pay our settlement fees up front at closing or roll them into the first draw of the loan.