Construction loan question

J

jimmyjazz

2,500+ Posts
I'm in a bit of a bind and can't find the answer to this question . . . and I need it soon. (My mortgage broker is out of the office until Thursday.)

In a "one-time close" residential construction loan that converts to a permanent mortgage once the house is built, can the closing costs typically be rolled into the note? I know it's common with conventional fixed-rate mortgages, etc., but I can't find any references online that answer my question. Thanks.
 
Thanks . . . it seems like it shouldn't be an issue, but this is hardly my field.

I'm trying to figure out EXACTLY what I need to sell my current house for in order not to have to compromise the new one. Whether or not I have to pay those closing costs up front and out of pocket is important. Financing them has a trivial effect on monthly payment but a substantial effect on what I have left over for a down payment.
 
Unfortunately you'll probably have to wait to talk to your broker and see if the product ya'll are using will allow you to role in the closing costs. I would wait and make sure there is some way to do it. I've only done one one time close before and my buyer had to pay the closing costs up front, but he had already purchased the lot cash and that counted as his down payment and he was fully financed for the actual construction. I know though that he wasn't allowed to roll in the closing costs, because he didn't have enough invested in the property yet.

You have to make sure you're LTV doesn't go over what you are allowed, if you are putting down 15% and have to put down at least 10% than you have to make sure the closing costs don't put you over that. The other way of rolling in costs, paying the seller more and having them pay closing costs, can't be done with a construction loan unless you get the builder to charge more in turn for closing costs.
 
well he could be worried about old MIPs as well
biggrin.gif
 
JohnnyM . . . the answer is "yes" (among other things.) No MIPs, though. I led a sheltered childhood.

slevhtown . . . just so I'm clear, can we take your numbers and hammer them out a bit? They don't represent my particular buying situation, but that's hardly relevant.

Assume $40K cash available and $10K CC on the new property. (Let's assume for whatever reason this is "fixed", and doesn't vary with the cost of the house being built. It's a flawed assumption, I know, but it will help shed some light.)

So, the $10K CC can be paid up front:

DP = $30K (down payment)
F = $120K (amount financed)
H = $150K (house cost = DP + F)


Or, the $10K CC can be rolled into the note:

DP = $40K (down payment)
F = $160K (amount financed)
H = $190K (house cost = DP + F - CC)


One can build $40K more house ($190K vs. $150K) if the closing costs are rolled into the note, although the new house must somehow appraise at $200K in order for 80% LTV to hold, right? In reality, my CCs are estimated to be nowhere near 5% (as in this example) but more like 2%, so getting the appraiser to go for it shouldn't be terribly difficult, particularly since our finish-out requirements will be very traditional and not lavish (read: hard to justify their cost).
 
If they allow closing costs rolled in (which isn't as common as people make it out to be) than that's what I was trying to get at, in a roundabout way. With a construction loan there shouldn't be any problem getting it to appraise for the 200k.

I do want to reitterate that you should check with your broker first before accepting these numbers as fact.
 
Oh, definitely, my mortgage broker is the last word on the new property. I'm just trying to figure out where to price our house. We started out knowing we were a bit high, and have had lots of activity, but no offers, so we're going to drop the price a bit for an open house this weekend.

Thanks . . .
 
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