I've recently started this painful process and was approved by 4 banks, but with 3 banks the terms weren't good for my situation.Recently, I was approved by Presidential Bank in Charlotte for the 395,000 needed. In addition, they offered a 13,900 interest payment reserve account. The out of pocket costs would be 10% of my lot costs which would be 9,000. then closing costs to the mortgage broker I am using.
The terms are 1% over prime or 7% whichever is higher, so 7% is my rate. I will pay interest only during construction and the home must be complete by the 12th month. Before jumping on this I started to call big mortgage companies as I am concerned due to the current banking/ mortgage environment. I spoke to a gentleman with Wells Fargo who has handled all my previous mortgages. He stated Fannie Mae and Freddy Mac have made changes to all banking institutions as of last week. He stated my permanent financing of the completed construction loan would not be based on the appraised value, but on the cost to build. This poses a problem as I will have to come up with another down payment to cover the either 5% or 10% of the cost to build (in my case cost to build is roughly 395,000).My original thought would be permanent financing would be based on the appraised value which, according to my appraisal would be 480,000. This amount would ensure I could avoid PMI.Now I'm considering walking away completely as the uncertainty of financing the permanent side of the construction loan generates more risk than I am willing to take. Can you offer any suggestions?