Home Mortgage Geeks

[RLLD 3,465]

I have a question about residential construction loans, anyone present have knoweldge in this area?

[Ravens 03 0]

I have a question about residential construction loans, anyone present have knoweldge in this area?

 

What's your question?

[Latin Pimp 0]

awaiting question......

[RLLD 3,465]

OK hold on here

[davebg 0]

anyone present have knoweldge in this area?

No, but that never stopped us before.

[RLLD 3,465]

I am buying an acre of land for about 80k, and then getting a construction loan for about 350k.

 

The lender told me that I would get 7.5% on the construction loan, and only pay the interest as each draw is taken over the next year.

 

Then, I get this letter in the mail yesterday regarding the truth in lending document. On it is listed an APR of 21% on about 343k for 11 months, and I am like WTF??

 

So I call the lady I have been working with and she tells me that it is an accurate APR but it is actually reflective of the cost of the loan +1 point or soemthing. What is this?

[Latin Pimp 0]

Calculating APRs on adjustable and balloon loans is even more complex because future rates are unknown. The result is even more confusion about how lenders calculate APRs.

 

Do not attempt to compare a 30-year loan with a 15-year loan using their respective APRs. A 15-year loan may have a lower interest rate, but could have a higher APR, since the loan fees are amortized over a shorter period of time.

 

The only thing I can think of here is that they consider your loan a very short amortization period and have added in points, fees, etc.

 

i wouldn't be too alarmed, just thoroughly read all Reg Z docs.

[Ravens 03 0]

I am buying an acre of land for about 80k, and then getting a construction loan for about 350k.

 

The lender told me that I would get 7.5% on the construction loan, and only pay the interest as each draw is taken over the next year.

 

Then, I get this letter in the mail yesterday regarding the truth in lending document. On it is listed an APR of 21% on about 343k for 11 months, and I am like WTF??

 

So I call the lady I have been working with and she tells me that it is an accurate APR but it is actually reflective of the cost of the loan +1 point or soemthing. What is this?

 

I do commercial not residential - but have done the EXACT same thing you are doing - bought the land and built mine 6 years ago.

 

The terms that you have negotiated are the important this - not the BS disclosures.

 

If you are happy with the interest rate, term, interest-only period, etc. be happy and sign the deal. Forget the disclosures, they are worthless in your case [i believe].

 

I assume it's high because you are paying a 1% fee at closing while using very little of the money the 1st year - while building.

[RLLD 3,465]

Calculating APRs on adjustable and balloon loans is even more complex because future rates are unknown. The result is even more confusion about how lenders calculate APRs.

 

Do not attempt to compare a 30-year loan with a 15-year loan using their respective APRs. A 15-year loan may have a lower interest rate, but could have a higher APR, since the loan fees are amortized over a shorter period of time.

 

The only thing I can think of here is that they consider your loan a very short amortization period and have added in points, fees, etc.

 

i wouldn't be too alarmed, just thoroughly read all Reg Z docs.

 

 

OK, this is basically what she seemed to be asserting.

 

The loan fees are being amortized over 11 months, and that is why the rate is so high, she also called it a "worse case scenerio".

 

She said my loan rate is still the same and I will only pay as draws are made by the builder. Further, it is likely I will only be paying between $200-300 each month since i am only paying the interest ont eh money being drawn.....

 

Does that sound about right?

[Ravens 03 0]

OK, this is basically what she seemed to be asserting.

 

The loan fees are being amortized over 11 months, and that is why the rate is so high, she also called it a "worse case scenerio".

 

She said my loan rate is still the same and I will only pay as draws are made by the builder. Further, it is likely I will only be paying between $200-300 each month since i am only paying the interest ont eh money being drawn.....

 

Does that sound about right?

 

The points amortization is correct. That's $3,500 in fee income for the bank in the 1st year whether you borrow or not.

 

 

How much are you borrowing for the land - $80,000 - or is that cash down?

 

The monthly draws take you from -0- to $350,000 within the year.

 

If you have $50,000 Outstanding - That's $312.50 per month interest-only.

So - $300+ per month for every $50,000 borrowed.

 

HTH

[RLLD 3,465]

The points amortization is correct. That's $3,500 in fee income for the bank in the 1st year whether you borrow or not.

How much are you borrowing for the land - $80,000 - or is that cash down?

 

The monthly draws take you from -0- to $350,000 within the year.

 

If you have $50,000 Outstanding - That's $312.50 per month interest-only.

So - $300+ per month for every $50,000 borrowed.

 

HTH

 

I will get the 80k land accquisition loan rigth up front, but put perhaps 30-40k down on it, so it will be about half of that i guess. I start paying on that right away. The overall "loan" for everything is based on a 12-month loan(to give us plenty of time to build the thing).

 

Then I have to pay the 1-point you mention, plus the loan costs, all which are figured into that 21% APR-apparently.

 

Then with each draw (prolly gonna do 4 of them) I pay increasing monthly amounts on the amount total pulled by the builder at that time. Then at the end its refinanced into a 30-year conventional.

[Ravens 03 0]

I will get the 80k land accquisition loan rigth up front, but put perhaps 30-40k down on it, so it will be about half of that i guess. I start paying on that right away. The overall "loan" for everything is based on a 12-month loan(to give us plenty of time to build the thing).

 

Then I have to pay the 1-point you mention, plus the loan costs, all which are figured into that 21% APR-apparently.

 

Then with each draw (prolly gonna do 4 of them) I pay increasing monthly amounts on the amount total pulled by the builder at that time. Then at the end its refinanced into a 30-year conventional.

 

That's how it works.

 

Biggest key was/is - Have the rate for the 30-year permenent loan LOCKED NOW.

Our construction rate and permanent rate were the same.

[RLLD 3,465]

That's how it works.

 

Biggest key was/is - Have the rate for the 30-year permenent loan LOCKED NOW.

Our construction rate and permanent rate were the same.

 

OK.

 

i am still uneasy about it, and I have the lady reviewing it with the guy who wrote it up, because the entry for 11 payments of 2400 seems wrong somehow....but we shall see.

 

This is going to be sooo cool, we are going to hook this thing up. I picked out this 35 cu ft refrigerator that is going to make the kitchen simply nasty...