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Frequent Contributor
sunrise
Posts: 430
Registered: ‎10-28-2007
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Construction to Perm Loan

We are locked in at 5.8% on a construction loan, we are going to be going to the permanent phase next month. (mid to late Nov.) Any ideas what the market will be doing interest-rate wise?  I am sick that they were 6.75% yesterday....I'd love to see them in the 5's again, any chance of that?  Also, is anyone doing 90% ltv equity LOC?  We are planning on doing an 80% cash out refi next month when we close the const. loan and roll into perm. financing.......and in the spring want to put in a pool...that is why I asked the 90% LOC question.  Thanks!!
takin' it one day at a time
Super Contributor
ShanetheMortgageMan
Posts: 8,254
Registered: ‎09-28-2007

Re: Construction to Perm Loan

US Bank was still doing 2nd mortgages to 90% CLTV a few months back - not sure if they are still doing that.  Most lenders have cut back their 2nd mortgages to 80 or 85% CLTV.

 

Rates could come back down into the 5's, no one has a crystal ball though.  I think after the current fears about the market subside we'll see rates get a little better, not sure they will get into the 5's.

Frequent Contributor
sunrise
Posts: 430
Registered: ‎10-28-2007
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Re: Construction to Perm Loan

Thanks, shane....

 

US bank, huh?  Do I have to go through a broker to get to them? 

takin' it one day at a time
Super Contributor
ShanetheMortgageMan
Posts: 8,254
Registered: ‎09-28-2007

Re: Construction to Perm Loan

Frequent Contributor
sunrise
Posts: 430
Registered: ‎10-28-2007
0

Re: Construction to Perm Loan

So, does the mortgage have to be seasoned before applying for a LOC?  We will be ready to roll into perm financing in Dec.  We will want the LOC or 2nd mtg. anytime after that.

 

Our plans/specs appraised at $525000.  We borrowed $375000.  When we go to close, we are planning on a cash-out refi. (we went over budget) that will take us to $415000.  I would like to borrow up to the 90% value of the house...to put in a pool. 

 

Do you think that anyone will be going back to the 90% loans when this all calms down?  I am hoping for a decent lock %...I won't count on anything in the 5's but, a really low 6% would be nice!!! 

takin' it one day at a time
Super Contributor
ShanetheMortgageMan
Posts: 8,254
Registered: ‎09-28-2007
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Re: Construction to Perm Loan

When coming out of a construction to perm loan, and just refinancing the existing mortgage debt (no cash out), most lenders will let you use the current appraised value of the home for qualifying purposes.  However when you do a cash out loan by paying off the construction loan, most lenders will only allow you to use the lower of the current appraised value or the cost to build (cost of land + improvements).  This prevents people from building a home, getting it potentially overappraised, then taking the cash out at the end of construction.  It's looked similarly to someone who purchased a home and got cash back (which they didn't put down originally) at closing.  If you refinance again afterwards (so you got the original construction loan, refinanced into perm. financing, and are refinancing again), some lenders will allow you to then take cash out using the current appraised value if you've owned the property for at least 12 months.


When getting a new 2nd mortgage, in order to use the current appraised value, you must have owned the property for at least 12 months.  Some lenders don't specify if the home has to be completed for 12 months, so if you purchased the land 12 months or more prior to applying for the 2nd mortgage that could satisfy the 2nd mortgage lenders seasoning requirement for using the current appraised value (vs. cost to build).

 

Mortgage insurance providers are still insuring cash out mortgages to 90% LTV with a 680 score (provided you aren't in a declining market), so if you refinance your 1st mortgage to get cash out there is that possibility.  However the rates for a cash out refinance to 90% aren't very attractive vs. if you just did a rate/term refinance with the original mortgage debt, plus there is also PMI.  Since you are only looking for another $40k to finish your pool I'd primarily look into a 2nd mortgage or other ways of financing it, rather than refinancing your 1st mortgage.

 

It's going to be important to make sure you have a lender lined up for you when it comes to getting the equity out of your home.  Worst case is you'd have to wait 12 months past the completion of your home to get equity out, the best case is you'd be able to take cash out with a new 2nd mortgage as soon as you've owned the property for 12 months.

Frequent Contributor
sunrise
Posts: 430
Registered: ‎10-28-2007
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Re: Construction to Perm Loan

We purchased the property in Feb. 2006.  We used part of the const. loan to pay off the balance of the lot.  So, what you are saying is that we can finance a 2nd mtg. (which sounds like the way we should go if we don't want to pay PMI) if we have owned the PROPERTY for over 12 mo's?  What are the rates, currently?  Should I be lining up a lender now?
takin' it one day at a time
Super Contributor
ShanetheMortgageMan
Posts: 8,254
Registered: ‎09-28-2007
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Re: Construction to Perm Loan

Since you've owned it for 24 months I'd think you should be able to get a new 2nd mortgage or HELOC on the current appraised value as soon as the home is complete.  I'd be looking at lenders now, as guidelines aren't going to change for the better.  Probably figure a 2nd mortgage rate anywhere from 8% to 11%.

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