Reply to Come along as we build our custom home- lessons learned in real time.

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]This might be a good time to talk about financing new construction, which will also address a number of comments about the value of the house/land, etc  First, our new build is under an hour drive to downtown DC (with traffic), OR, a 15 minute drive to a train station + 30-40 minute ride in.  So, its definitely a suburb but I wouldn't call it an exurb.

Three main categories of costs to build include:  Lot/land cost,  Site prep (that includes permitting, grading, sewer/gas/electricity hookups or infrastructure if neccessary, stormwater management, etc), and construction.  I'll add a 4th category, which is financing (loan closing costs + interest until the new construction loan converts to a mortgage, at completion of construction).

Our loan is a construction to permanent loan, which we got through Sandy Spring bank.  If there is interest, I'll go into more detail, but the thing to know, in light of upthread confusion or misinformation, is that the bank appraises the construction plans and while they don't reveal the specifics of the formula, just like any other appraisal they use comps in the area.  We're pretty in line with similar homes that have sold in the last 3 months within a 2 mile radius--a little high, as is typical of new construction, but within the +20% .

Its very hard to get a loan if the home falls outside of these norms.  It does help to have 'dry powder'/cash as a previous poster noted.  Just like a regular mortgage, the bank will not finance 100% of the cost of the home.  Construction loans are just that-for the build.  They don't cover purchase of the land, or site prep.  Those are all significant costs. Site prep is an easy 100K.   [/quote]

How are do these construction loans work before converting to a traditional mortgage? Rates, payments etc etc [/quote]

You pay interest on the money you draw to complete your build during the construction process.

You close at the beginning and not the end, and keep the rate the entire time. I'm not OP, not sure how Sandy Spring works, but we had to close at the beginning and you still have the option to put more $ down before it rolls over to a traditional mortgage. [/quote]

NP - I believe the PP and OP are both referring to construction-to-permanent loans, whereby you have a single closing. The other option is a construction loan that upon completion converts to a traditional mortgage - so you close the construction loan, then close the new mortgage. Both options typically have higher interest rates than a traditional mortgage, with C2P being the highest. (We just finished our construction loan and found the process confusing initially! We ended up choosing another broker over Sandy Spring bc we had a low mortgage on the property and SS was not forthcoming that we would lose that interest rate- our lender kept our low mortgage on the new property and gave us a construction loan leveraged on our old house)[/quote]

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