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I have just signed up to build a house with a small builder. The house is likely to be ready in September according to the builder. The builder had me get pre-approved with a lender he knows which I did. This lender is now asking me to pay an appraisal fee even before the builder has got permits to build the house. I feel not comfortable about this. I have talked to the builder and he is OK with me getting a loan from anywhere and he will still pay the agreed closing costs. I have now decided to shop for the best mortgage deals.
A little background about me:
1. I have over 800 FICO score from all 3 credit bureaus.
2. I am putting down 20%.
3. I have no other loans.
4. I have solid employment history.
Now, my questions are
1. When should I start shopping for loans? I know I should be comparing GFEs from all prospective lenders/brokers/banks within a few hours. Is there something else I need to compare?
2. I am thinking of getting GFEs from 1-2 brokers, 1-2 online lenders, 1 big bank, a credit union and the lender who pre-approved me. Will I be doing the right thing?
3. What is the lock period I should choose? Will a 30 day lock period be enough or should I go for 60 day lock?
If I have missed out any other important questions I should be asking, I will be grateful to hear them.
Asking for an appraisal fee now is a Quicken-like attempt to "stop the shop" and "get you off the street."
I would not pay them a penny yet, and when I do, I would ask for a Disclosure that confirms that they will Transfer the appraisal to another lender upon request.
The longer you lock, the higher the rate. Some banks have a one-time float-down, but it only comes into effect with a BIG movement in the bond market.
Optimal lock time is 30 days, but where will the market be when you are 30 days from closing? Fed Chief Janet Yellin spoke this week about Housing market concerns, indicating she has her eye on keeping rates where they are. But since when can you trust the market to react the way you expect?
If you shop lenders, get their terms in the same 2-3 hour period. Compare Rates and Origination fees. Title fees will be identical, as will tax and insurance collection, and different lenders calculate them differently - and all of them are inaccurate, as with a new build, only the dirt is taxed, and your tax rate will be calculated a couple weeks before closing.
Builders offer "incentives" to use their lender because it's good for them, as they are making $$ off the lending also. Can't blame them, but it's incumbent on you to test the market.
Thank you very much for your reply. I also felt the same way when the lender who prequalified me wanted me to pay the appraisal fee.
My builder has told me that I am free to use any lender and he will still pay the agreed upon closing cost. So, I am free to shop for mortgages. My OP was to know what the best strategy would be for me to find the right lender and when to begin shopping for mortgages and when to lock the interest rate.
Should I start contacting lenders now to get their GFEs right now and choose to work with the lender that gives the best terms or should I wait till about 60-70 days before closing to shop for mortgages and both choose the lender as well as lock my rate at that time?
I understand that nobody has a crystal ball to tell me where the rates go. I am thinking of locking my rate when I feel it is a good rate I am comfortable with without worrying if it will go up or down. Is this the right thing to do? I assume that you feel locking in for 60 days is good and not 30 days. Am I right?
Quote:
Originally Posted by Pfhtex
Asking for an appraisal fee now is a Quicken-like attempt to "stop the shop" and "get you off the street."
I would not pay them a penny yet, and when I do, I would ask for a Disclosure that confirms that they will Transfer the appraisal to another lender upon request.
The longer you lock, the higher the rate. Some banks have a one-time float-down, but it only comes into effect with a BIG movement in the bond market.
Optimal lock time is 30 days, but where will the market be when you are 30 days from closing? Fed Chief Janet Yellin spoke this week about Housing market concerns, indicating she has her eye on keeping rates where they are. But since when can you trust the market to react the way you expect?
If you shop lenders, get their terms in the same 2-3 hour period. Compare Rates and Origination fees. Title fees will be identical, as will tax and insurance collection, and different lenders calculate them differently - and all of them are inaccurate, as with a new build, only the dirt is taxed, and your tax rate will be calculated a couple weeks before closing.
Builders offer "incentives" to use their lender because it's good for them, as they are making $$ off the lending also. Can't blame them, but it's incumbent on you to test the market.
Okay, that clarification helps. Typically, I recommend the borrower get back in touch with me at time dry wall is almost complete. That's when we order the appraisal (I don't collect the appraisal fee until closing - you sign an agreement to pay any fees if you don't close). Also, at that time, we check with the builder to see if there are any utility delays, confirm u & o (use and occupancy permit) timing with builder and lock. If at any time during construction there's indications rates are going up, we discuss locking with a capped rate, with a float down. (Slightly higher than what a normal lock runs).
Thanks for your reply. Do you mean to say that I can wait until the dry wall is almost complete to shop for mortgages? Or should I decide on a lender now and work with that lender only going forward?
Quote:
Originally Posted by SmartMoney
Okay, that clarification helps. Typically, I recommend the borrower get back in touch with me at time dry wall is almost complete. That's when we order the appraisal (I don't collect the appraisal fee until closing - you sign an agreement to pay any fees if you don't close). Also, at that time, we check with the builder to see if there are any utility delays, confirm u & o (use and occupancy permit) timing with builder and lock. If at any time during construction there's indications rates are going up, we discuss locking with a capped rate, with a float down. (Slightly higher than what a normal lock runs).
Okay, that clarification helps. Typically, I recommend the borrower get back in touch with me at time dry wall is almost complete. That's when we order the appraisal (I don't collect the appraisal fee until closing - you sign an agreement to pay any fees if you don't close). Also, at that time, we check with the builder to see if there are any utility delays, confirm u & o (use and occupancy permit) timing with builder and lock. If at any time during construction there's indications rates are going up, we discuss locking with a capped rate, with a float down. (Slightly higher than what a normal lock runs).
If the builder is willing to finance the start of construction that is a different story -- seems to me this VERY MUCH is a "construction loan", the OP may not call it that but if the builder is not going to start until financing is arranged...
Frankly the OP has not given enough details to be 100% sure what they are attempting to do -- Is there any land owned but the OP? Do they have an estimate from the builder? Does the OP have at least 25% of that available in cash???
The are MUCH higher costs and assoicated RISKS associated with new construction and if the OP is not on top of these things they ought not be talking with a builder.
Thanks for your reply. Do you mean to say that I can wait until the dry wall is almost complete to shop for mortgages? Or should I decide on a lender now and work with that lender only going forward?
You are just getting a regular loan with an extended close date. Here's the process - you contract calls for you to provide a loan approval within a certain period of time. The typical required time frame for this approval is before breaking ground or before buyer preference items are put in the home (after all, your taste could be terrible). That is the first required loan approval. Now, because your documents are only good for 90 +/- days, the file requires updating (which feels like a 2nd approval, because it is a 2nd approval).
If you are going to move loans, this second approved would be the optimal time to move.....but of the first is collecting the appraisal this early, you may want to move now.
If the builder is going to finance the construction of the home as though this is a "spec home" (meaning the builder will have title to the land and all the in-process work until such a time as the home is finished and ready to be sold with conventional financing...) that is one thing. I can image that some builders, especially in areas where demand for new homes is very high, would be OK with that. Maybe the builder is willing to take a "partial payment" upfront and appropriately document that so that it could be credited to the buyer. It is quite another if the OP owns a piece of land and is having the home built with the builder expecting ongoing payments until completion. I suppose there are some builders that would also accept title to the land in lieu of cash but honestly that is the WORST situation for a refi as even with a really well documented land appraisal the requirements for the buyer to show equity is going make this an loan that only portfolio lenders would handle ...
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Still not at all clear...
