Lenders & appraisers

We looked at several big lenders: IndyMac, Wachovia, Sun Trust, Wells Fargo.  We looked at several small lenders: People’s First, Center State, Colonial Bank.  We found small, local Florida lenders pretty much the same way we found builders.  We used the County Clerk documents (see link in builder page) to see what lenders other people in our subdivision were using.  We also asked our builder whether he had any recommendations, and then we proceeded to sort through the terrible muddle of financing options for home construction.

Because we were doing a construction to permanent loan, and not buying a house outright, none of the good deals seemed to apply to us.  Many lenders wanted to charge us prime minus 1/2 during the construction process.  Most lenders also were reluctant to lock in our actual mortgage rate until 30-60 days before the home was completed.  This was a problem for us, because we knew that interest rates were steadily rising.  So one of our top priorities was choosing a lender who would let us lock in our mortgage interest rate now, not a year from now.

Another concern was the amount of money that we had to put as a down payment.  We had already put 10% down on the lot, so we wanted to be able to use that equity toward the construction loan down payment.  Some lenders offered loan to value loans.  For those of you who are like me, clueless, loan to value means that if, for example, your house appraises at $500,000 but only costs $400,000 to build, you already have $100,000 equity in it.  This is nice, as it eliminates the need for costly private mortgage insurance if your house appraises for more than it will cost you to build.  It is also good because it lowers the amount you HAVE to have as a down payment, though you can, of course, always put down as much money as you’d like.

Loan to cost loans are different.  In this scenario, the bank assumes that your house is worth what it costs to build.  If it costs $400,000 to build, and you have to put 5% down, you will need to come up with $20,000.

We chose our lender because their bank fees were low and, primarily, because they allowed us to lock in our mortgage interest rate now.  During the construction period, we have to make interest-only payments for the amount that they have disbursed to the builder.  For example, if the builder’s first payment is for $100,000, we pay interest only on the $100,000 until he gets another payment.  Additionally, we are only being charged our mortgage rate interest, not the prime minus 1/2 exhorbitant amounts that the other banks were asking for.

All is not a bed of roses with this lender, however.  We were told by our contact at the bank that we could use our payments to the house designer (which we’d made before getting the bank loan) as equity and so as part of our down payment.  This was, needless to say, appealing to us, because a. we would need less cash at closing and b. we could get tax deductions on the interest paid toward the designer expenses.  When we got the loan documents, however, we noticed that  this equity was nowhere to be found.  We spoke with another contact at the bank, who said that no, we couldn’t use those receipts as equity.  We then tried to call back the woman who had told us that we could, only to find that she no longer worked at the bank!  This double dealing was aggravating.

Another example of deceit that we encountered with this lender was with the rushing of our close date.  We had locked our rate in until June 23, and we told the woman at the bank that we wanted to close as close to possible to that date, since once we closed, the 12 month construction clock began, and we did not have (and still do not have today!) our permits yet.  I was surprised to get a call from her, then, on June 2 saying that  we were set to close on June 9.  When I told her that we’d locked the rate in until June 23, and that we didn’t want to close yet, she told me that my husband had called her and specially requested to close on June 9!  It was such an obvious lie, and one that was easily found out: my husband was astounded to hear of his supposed “call.”  I called her back and said that he had not made any such request, and that we would need to delay closing until June 23, as per our actual request.

She then told me that the title company had already had to redo the papers once, because of a bank error, and that they would charge us $500 to redo them a third time.  I said that I failed to see why we would have to pay for the bank’s earlier error, but she refused to budge, so, to save myself the aggravation, we agreed to close on June 9 as they insisted.

These two examples of outright dishonesty left a bad taste in our mouths, though, and if we had it to do over again, we would get every, single, tiny detail in writing from someone at the bank, and we would make sure that any requests that we made, such as the June 23 closing, were acknowledged by the bank employees in writing.

We closed on June 9 and then the plans were sent to the appraiser.  Because we were building an ICF home with a metal roof, the most energy efficient and durable materials possible,  we were surprised to see that the appraisal initially came in $20,000 under construction cost.  We had thought that this would be a non-issue, since the only house in our subdivision that was for sale had an asking price almost $300,000 more than our construction price (no houses had sold there yet, because the community was so new).  Imagine our surprise when the appraisal came in so low!

I called the appraiser to speak with him and got a big shock.  Apparently the appraiser did not take construction materials into consideration when making the appraisal.  The only consideration was heated square footage, and then any additional amenities like a swimming pool or a lakefront lot.  He told us that our house would appraise for the same amount if we used a stick frame, vinyl siding, and a shingled roof.  We thought that energy efficiency would be a selling point for the house, but apparently that was not the case.  The fact that we were in a gated equestrian community also added nothing to the value; we could have bought a lot next to a mobile home for all the appraiser cared.  However, after speaking with me he did revise his appraisal to be only $8,000 less than construction costs, though he charged us an additional fee to revise the appraisal…

As of today, we have closed our loan and the first disbursement has been made.  However, we are still waiting on permits, so the disbursement is just eating up interest for no particular reason right now, thanks to our rushed closing.

2 Responses to “Lenders & appraisers”

  1. brownappraiser Says:

    I have to say you spoke to an unknowledgable appraiser. There are multiple factors that go into an appraisal – quality and location are key. An appraiser that says the location or materials used does not matter is either from days gone by or one that has not been properly trained. Also, the fact that they charged to ‘correct’ the report is immoral in my book and probably USPAP – which I bet he does not know. Don’t think all appraisers are like this. It is possible that the value was just not there, but that is not how I read it. Appraising is an art not a science, although you better be able to support your numbers!

  2. hmp2z Says:

    I agree with you; we thought it was very odd that the appraiser didn’t take the materials into account, and then was willing to revise his appraisal (for an added fee, of course). But we had to go with the bank’s appraiser, and this was their choice, so we really didn’t have any good options here.

    Thank you for your comment!

    Heather W

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