Construction Loans??!!

[Melissa]

Hi all,

We went and talked to a loan specialist with Wells Fargo today. No problem with new construction home loans on new MH's placed on property. I have a BIG question though for those of you out there who have gone through the construction loan process. When they say that you have to pay interest on the construction loan while construction is in progress (before it gets rolled over into a permanent 30 year loan) what exactly are they saying?? Lets say it's going to take $100,000 to buy the land, home, and all the extra's. If the interest is 5%, does that mean we have to pay $5000 a month during the construction process? He said we would pay "interest only" monthly for the amount loaned during construction. He can't possibly mean such a large amount could he? We didn't think about it until we got home and now we can't ask him until next week! Stressin' out....

Melissa

[rmurray]

That would be 5% per year.....or... .416666% per month....actually.. .01388888% per day...interest is earned daily.....

Your example numbers.. $416.67 per 30 day month... actually $ 13,89 per day...Do not let the dealer waste too many days at this rate..

Go for it...

[Melissa]

Thanks

I woke up this morning with dollar figures floating around in my head and realized the percentage had to be based on yearly, not monthly. No one could afford $5000 a month while their home was in construction! Well....no one "I" know
Thank you for the re-assurance. You've been a great help. I think we are going to move ahead with this. The realtor see's no problem with our home selling very quickly. Here in CA home sales are up, esp where we live. Our next hurdle is having an appraiser see if the land, home, and extra's will appraise for the amount we are going to need to build it. We are building in another county and the land values there are much lower than here. One hurdle at a time...

Melissa )

[T. Goodwin]

We just closed our house and used a construction loan. Be
aware that this industry hasn't a clue how they work, they
are all learning about land/home now since most of their
lenders are leaving this industry. Your dealer isn't going
to like the route you have chosen. Your bank and you will
be very happy campers.

How it works is you will give your downpayment, the bank
will do the rest.When your house is delivered the bank
will release some funds, in our case it was 2k. After the
house is finished, first walkthru, skirting finished your bank
sends it's appraiser, to see if you are happy and if you
want to fund the rest of the loan. If you have ANY problems,
now is the time to get them addressed. Do not pay these
people until you are happy. Also, the house won't be funded
without the skirting being finished. If your service isn't good
not finishing the skirting might get their attention.


In the meantime the only interest you pay will be the amount
the bank released when the house was delivered.


Good luck, let the bank handle these people. They will
grovel and whine. I had a divisional manager and sales
manager calling the bank 3,4 times a week. If problems
arise, and they will stick to your guns.

Enjoy the house, we do!!!!

[rmurray]

This is the best feature of the construction loan process...You are correct that many dealers are novices at this....;but...many are very experienced..

Of course a construction loan benefits the dealer as well...He gets funded as thing progress instead of waiting until the end...This is a win..win situation...Everyone should be happy..

Many of the problems mentioned on these boards are because money was paid up front....

As a long time industry veteran....I think mortgage finance is the best thing to come along in many years...

[Melissa]

You say the first thing we will do is give our downpayment.....who do we give the downpayment too?? I was assuming the bank would take care of all the financial aspects of the process... confused again

Melissa

[rmurray]

Your downpayment...or cash committment is given directly to the dealer to lower the total due him.....OR...is often paid at closing to the attorney's escrow account...He then distributes the money in accordance with the instructions of the lender...

Most dealer will require at least the cost of the appraisal and credit app up front...This keeps them from losing if folks change their mind midstream.....

Just relax....let the process move along...most dealers and most lenders are very honorable..You probably have weeded out the bad players already..You have done yourself a big favor by getting fully educated...Now..trust your instincts and move forward..Just be certian that everything is in writing, read everything you sign and understand or get an explaination (usually from the attorney) and monitor each step of the way...

Do not let your fears delay your descision...Rates are at their lowest now...time will only cost you money in the form of higher rates..

[Amy]

Just to let you know.....we are in the process of getting a construction loan too. Our MH Dealer requires ALL the money for the house the second it touches our property. Check with yours and see what they require. Apparently our lender is aware of that and will have already given us the money to pay for the home upon delivery. They said once the home is on the foundation it is considered real estate and the dealer no longer has collateral for the real property they have sold us.

I am concerned about having the set-up completed as I would like though. Like RMurray said, problems can arise if they are paid all the money up front. I don't want them to to skin out prior to my being happy with the home and set up. I plan on trying to withold some of the money....maybe 5 or 10% until I am satisfied with everything. If anyone has advise on THAT matter I would love to hear it! I am still in the negotiating phase.....and have time for more research.

[rmurray]

Amy....The dealer does work off borrowed money and is required to payoff his loans the moment the home leaves his lot...

I think your offer to withhold about 10% should be reasonable and grudgingly accepted...Just remember this is a 2 way street...If you have the money in your nchecking account...he might not be too willing to agree...Somehow some folks seem to lose it...It should be in an escrow available only to him or the mortgage company..

Remember this money is not to cover all warranty items...This is to assure that you get all goods contracted for and a reasonable set up...Small items that are warranty should not cause you to hold large sums of money..Some dealers will not consider the home yours until paid for and would restrict your right to live in it until paid...

[T. Goodwin]

If the dealer told you full payment is required when the house
touches your property when using a construction loan they are
either clueless or liars.

I had a Palm Harbor sales manager pull that crap, guess what
when we started walking would be happy to take 10% on
delivery, the rest when we had taken possession.

If you have good credit, which you must to even qualify
for this type of loan, use the resources you are paying
extra for to your benefit. You and the bank will now
be taking control of the purchase process, not the
gravel guys.

I'd tell these people to piss up a rope, we dealt with
countless dealers from several different makers, you
have your own financing, a construction loan is not
paid until these steps are finished.

1. House is appraised after it's delivered by bank.
2. House is appraised again after it's finished,
skirting, sewer,water,drywall,etc.
3. The bank and you do a final walkthru, if YOU
are happy they will finance.

As far as holding back 5%, after you have the problems
fixed from your first walkthru, you usually pay for the
house. At this point tell the bank to hold another 5%
back until the builder finishes all the items on your
final punchlist.