Borrower: Lot/Construction/Perm Loan for SFR in NJ, 768 FICO

cdigs · Joined: 14 Feb 2007 Posts: 3

I am a borrower seeking a lot/construction/perm loan for a single family residence in NJ.

It will be the primary residence for my wife and myself (owner-occupied, we plan on starting a family there :)).

We will be able to provide full documentation (bank statements, asset verification, two years W2, pay stubs, GC contract, construction specs, and line item cost breakdown).

As of 11/27/2006, my FICO is 768, my wife's is 737 (printout available in PDF; haven't checked score this year yet). Our combined income last year is roughly $134,000. My wife is a school teacher (stable job) with a consulting gig on the side teaching staff education math workshops. I am a software engineer with full time employment and verifiable work history. We have had a previous mortgage on a townhouse (sold it about a year ago) with perfect payment history. Currently "renting" from my mother (more like free-loading ;)); we do not have a mortgage at the moment. Will be completing one car loan in May, which will remove $850.00 from monthly debt.

- The house will be 1998 heated SQFT, four bedrooms, three bathrooms, two floors, two garage, finished basement
- The lot purchase price is $199,000
- Construction costs are estimated at $275,000 (confirmed by two GCs, target of $135/SQFT)
- With a reserve of $25,000 for a total of $499,000 (not including closing costs, other fees and what not)
- My unprofessional guess at the appraised value, based on the MLS of older homes in the area with similar sizes, will be $575,000 minimum and probably no more than $610,000.
- We will be putting $45,000 down, we also have $30,000 in mutual funds (if we need it), and about $20,000 in retirement savings which we don't plan on touching.

- The lot is located in North Brunswick, NJ, 08902
- Tax assessed value is $58,000 for the lot only
- The lot is flat, 100x100, cleared (with huge, beautiful mature trees in one corner)
- The house will hook up to city water and sewer (at the street)

- Current spec is to build to a mid-high end interior finish including full hardwood floors, quartz counter tops, custom cabinets, frameless showers, interior French doors (where appropriate), solid hardwood doors, mid-high end kitchen appliances (Dacor, Bosch), custom low-voltage lighting
- The GC is working under fixed cost contract and we will directly sign checks for invoices on all materials (no GC markup on materials).
- GC will also let us use our own subs but will provide us with his list of recommended subs.
- Estimated construction time, by the GC, is 2.5 months with a two week buffer for a total of 3 months.

Whew, that was quite lengthy. So, any good lenders in the Tri-State area willing to make a good offer? I've been in touch with IndyMac, whom so far, has shown the best package. Valley National Bank is another regional lender, but their paperwork is a bit dense (just for pre-qualification) and their rep. hasn't been helpful. M&T also gave me some numbers, but their construction interest rate is in the 8.##% range (IndyMac is 7.375% as of 1/16/2007).

I'm also working with mortgage broker on some numbers, but they don't look so hot at the moment.

I would like to hear ideas and suggestions for other lenders to persue. What are some tips when shopping for this type of loan? What key questions should I ask? What key numbers should I look for? What hidden gotchas should I watch out for?

Any info would be much appreciated. Thanks.

m2c · Joined: 03 Aug 2005 Posts: 937

I’m going to have to give up my secret broker decoder ring but I do not like brokers in the single close, new construction world. Brokers have a lot of value added but I was cautious on this type of loan. I ended up going with a local (actually regional … well national) bank. Many times brokers (even Wells on their direct deals) will hit you with the higher rate during the construction phase. Maybe that’s fair to them but baloney; I didn’t want the higher initial rate. Bank not only had the lower rate (not always the determining figure) but their fees were lower even before I suggested I didn’t think a fee or two were reasonable and should be removed. Also it was appealing that I’d have a reasonably local office to yell at should something go amiss. All depends on the local market but the various brokers around here were buffoons who truly made inaccurate statements (I did not tell them my occupation). They were the types that overnight promotional material; Oh, that REALLY impressed me (Chow you need a sarcasm icon button). I would cast a wider net of financing sources.

Just some other comments having gone through this recently. $135/sf seems low given your general description. Construction value/land value seems off although that may be what you have to pay to live near the megalopolis. Reserve for overrides is “optimistic”. We opted for cement countertops where we didn’t succumb to the conventional-wisdom of granite. You might look at Asco for dishwashers. Full hardwood might be overkill. We went with engineered but this was largely driven by expansion coefficients needs for the radiant heat. Be there nearly ever day during constructions (3 months is “quick”). I make sure they insulate at every drill spot of wires, etc. – cuts down on noise and drafts.

cdigs · Joined: 14 Feb 2007 Posts: 3

m2, I agree that I would prefer a local lender that I could actually sit down and meet face to face with. Valley National Bank and M&T are the two which are closest and offer construction loans (as far as I've been able to find). IndyMac only has branch offices on the west coast (and even then, I think only in California), but their site has the most information, has the best tools, their people are knowledgeable about the construction process, and their numbers look "okay".

With IndyMac, the lender charges for closing the loan, as an estimate, comes out to $4564.00 (with an additional $4902.00 in third party closing costs such as title insurance, appraisal fees, property insurance, and what not). That number is for a one time close on the lot, construction, and permanent mortgage. Aside from that, their documentation on their process and the information they have is incredibly well composed and complete (at least in electronic from); it gives the sense that they've been there and done that (so to speak) in terms of construction loans.

I'm somewhat hesitant to send in an application to them as I have the same concern: sometimes it's just easier to hash out problems (potential ones) in person in a face-to-face than it is to try to play e-mail and phone tag across three time zones. So really, that's why I'm posting here :) I'm hoping I can get pointers to other banks/lenders that have worked out well for others for construction loans.

$135 is indeed on the low end (another GC quoted me, based on their projects in the previous year, a range of $135-175), but the relationship with the GC we have in mind is that he's in more of a project manager role and his fee will end up being less than 4% of the estimated construction costs using a fixed fee so that even if we upgrade this and that and costs do eat into the contingency, his fee does not change. He's been extremely helpful to boot, his insurance and references all check out, too. It's almost an owner-builder to PM relationship as he has stated that we are free to get our own bids from our own subs and find the best prices; he will simply monitor the work, check price quotes, manage progress, and help evaluate the outcome.

Hardwood has been budgeted into the construction estimate already. To be honest, the prices for good engineered wood floors are only a few cents off from solid hardwood and I've found some good deals on Brazillian Rosewood (3/4" thick, 5" wide, $3.99/SQFT by the pallet, $500 quoted for freight). I plan on doing the install myself as well as a portion of the tile work.

Indeed, your assesment is correct: the construction/land value is skewed, but that is the reality of the location (close to train stations and transportation centers into NYC, ~45 min bus ride to NYC on a good day, ~90 min. drive to Philly). I keep trying to convince my wife to move to Utah, but she refuses ;) The number of individual lots in the area is almost non-existant. The owner of the lot has already had several offers, but all from professional builders, whom he refuses to sell to (the only reason we're still in the game). I'm still crossing my fingers on this lot and hoping we can make a deal (he's verbally agreed to sell at a $9,000 discount once his realtor contract expires - the $199,000 price would be if I bought now, under his current realtor contract, he would discount it $9,000 if we wait until his contract expires and the waiting period is over). I know, verbal agreements don't count for a whole lot. But there seems to be a little bit of fate involved as well. My wife taught his granddaughter and she was my wife's all-time favorite student and my wife was her favorite teacher (so far, as I was told by her parents when we bumped into them at the local Lowe's). In any case, the only course of action we can take is to prepare as if we're going to get the land and get all of our documentation in order for the loan application.

Being a school teacher has its advantages; we plan to break ground just as my wife is wrapping up the school year, so indeed, she will be on site at all times. 3 months is optimistic, but the same builder finished a 5,000+ SQFT mansion in NY last year in 6 months (confirmed by the owner of the house; owner actually paid the GC a bonus for coming in under budget and right on schedule).

How much did your cement countertops run you compared to natural stone and how satisfied are you with them? I've looked at them and I like some of the textured stuff, but I can't convince my wife that concrete is "sexy" ;)

ken(TX) · Joined: 23 Sep 2005 Posts: 184 Location: Dallas, TX

cdigs,

You really have your "act" together on this deal. Good job. I just wish you were building in Texas where I am!

We have an office in Princeton, NJ which may be the closest office to North Brunswick. Michael DeBronzo is the sales manager there and his Office: (609) 987-3558.

Bank of America does a really good job with one-time-close construction loans and they are someone I'd suggest you consider. Of course, I'm biased....

I spent a few years with IndyMac Bank earlier in my career and you are correct in having concerns regarding a transaction of this type working through someone in a call-center.

Good luck! Sounds like a great house.

m2c · Joined: 03 Aug 2005 Posts: 937

The $4,564 (not including prepaids and third party charges) seems high. Yes, it’s a market area of which I am not familiar but many of the geographic charges would be in the third party area. As I recall an attorney is needed to “represent” you in NJ and they don’t come cheap. I suspect those quoting these fees are including an origination fee in addition to some other junk fees. I went along with $500 in my deal but this is always mix and match with rate so establish the rate first and then go over the fees you don’t like second. If there is a lot of fat in the deal, you arrive at a happy median. Always possible that LO was being “true” from the get go and adjusting the rate to fit the “junk”.

I would be curious how the construction manager on a fixed fee basis works out. You do have to allow sufficient profit to motivate the subs and suppliers.

As I mentioned our heating system put some limitations on wood flooring. Strangely enough plank width was one parameter. We ended up going with mahogany but couldn’t find a prefinished stain we liked so it was sand, stain and seal on site. I did ask why they weren’t using those Hepa filter sanders. Basically a cost item on new construction. Less expensive to clean than use the more expensive machines.

Can’t recall the cost of the cement counters. Basically my wife chose for the higher heat resistance and duller finish. Did go the cliché route for one island and the finish in cement went better with the granite. Since you do buy granite from the wholesalers by the slab, it turned out to be less expensive to use the “extra” granite in the butlers’ pantry rather than go the stainless route we had originally planned.

Other items we found. Definitely love SIPs. They priced out about the same as standard stick and you pick up the added insulation and tighter seals. Used SIPs only on the exterior mostly because we didn’t have our act completely together and needed some flexibility while we worked out outlet placement on the interior. This was the first time our contractor used SIPs and he built 4 other homes this way since.

I tried to go back to your house plans but I think Hap has deleted the link. Complex roof lines are all the rage now but I’m can’t recall your house plans. The more complicated your roof lines, the more flashings are needed increasing potential future maintenance issues.

The current trend towards minimal depth refrigerators drove us crazy. Finally went with the “monster” sub-zero which despite its width, has about as much storage space as our current appliance (circa 1968). We had hoped the magnetic technology would have panned out by the time we bought a new frig. Wolfe over Viking was an easy choice on ranges. Prewire for every bit of technology you ever think you MIGHT need. Generators are pricey but if you might put one in in the future, it's easier at the construction phase.

Best to spend some time now narrowing down the list of lenders and/or brokers. I’d target for pricing just about the same as a standard purchase. Not rationale pricing from the lenders point of view but that’s where competition has driven the market locally. Again brokers in dealing with national wholesalers are pushing the origination fees, etc. It’s not that they’re trying to take advantage of you; it’s rational pricing relative to risk and forward coverage but no reason for you to play “Mr nice guy”. Some third party charges will be higher but that’s just the nature of the beast.

cdigs · Joined: 14 Feb 2007 Posts: 3

m2c,

I've included a snapshot of the numbers:

With regards to the construction manager, he is really a unique guy - you have to meet him in person to get a feel for his energy. I think it's because he's a younger GC, probably just around 30. But he's had experience with custom home construction as a GC and his references check out. All of them were extremely satisfied with his work and said that he followed up with them months after construction was over.

I've looked into the SIPs, but I don't know how they will hold up for resale in our region. I've also looked into panelized construction, but the GC thinks he can bring the house to lockup, materials wise, at a lower cost using stick rather than using panelized and within 7 working days with his framing crew. I still want to discuss this with him as well. The house itself is a pretty basic home, but has just enough character in its external features to make it pop in any neighborhood. I purposefully chose to plan for the simplicity of the roofline (well, it's not as simple as having a single ridge, but it's close), open layout (cuts down on interior walls), and the proximity of the bathrooms; we had to give up some features that we really wanted, but given our limited budget (and the hope that we will continue to build in the future), I can live with it for now.

As for extras, again, because of the limited budget, I'm not gonna go crazy with it (i.e. heated floors, generators, dual compressors, and so on). My thinking now is to focus money and energy on the things that are going to be seen and going to be noticed when a buyer walks through the house (I do plan on living there at least 5 years, but gotta think ahead!) such as lighting, flooring, windows, paint, trim, and balusters (of all things). Extra features will be considered on a "have-money" basis :-)

I've been hitting up home sites and shows in my spare time. GardenWeb has been amazing insofar as finding sites that have amazing deals on lighting, plumbing fixtures, and appliances. Tons of good ideas to be found there (and here, too).

Ken, I'll give a call to the contact in Princeton. I'm looking at and evaluating every option (I did call Bank of America yesterday, but was directed to another woman in Bridgewater). I'm trying to keep it all together and have everything figured out because I personally understand that this is a huge undertaking with a high risk of failure - and failure is the exact opposite of where I want to end up :) It's easy to motivate myself to do extra research and learn about every aspect of building a house - from financing, to building for maximum effect, to shopping for deals, to hiring the right subs, to ensuring that the work progresses smoothly - just knowing that the more knowledge I have and the more homework I do, the greater my chances of success.

m2c · Joined: 03 Aug 2005 Posts: 937

Well, the tax service, flood cert., and credit report fees are “normal”. In today’s environment, a “business evaluation report” (on the builder or PM I assume) is nothing I’d squawk about. The other fees are “interesting”. Partial discount point would be relative to the rate you choose. Some third party fees are higher than for an existing dwelling since more work is involved. Title insurance appears low.

When I jumped through the hoops, it appeared that the tactic was to quote nearly the same note rate (variance up to 0.125%) at no points and then tack on fees. Note rates were basically the same as 60 or 90-day “locks in the existing home mortgage field (approximately 6.00% & 0 in today’s market for a 30-year fixed). The LENDER really does deserve some fees on construction lending for the gestation and hedging risk but we your 3-month build time (I still have my doubts) these risks are lowered. Yet the LENDER (as opposed to broker) does deserve “something”. Competition in the regional market is brought the note rates in line with existing rates. Not logical but I wasn’t about to look a gift horse in the mouth. In my case the exactly-what-are-these-fees-for-again-? fees were $250 plus $750 to extend the construction phase to a year and a half.

Competitive pressures egg and wane but I’d keep checking around – don’t blow what you’re saving by laying your flooring on financing costs you might be able to avoid. You might get leads from whom your neighbors-to-be used for financing (http://publicrecords.onlinesearches.com/NJ_Middlesex.htm looks promising -- you typically need to pick up owners’ names via a street search from real estate tax record site and then pull up copies of the mortgages).

I did try to locate the Gardenweb reference you made – no luck finding. Remember Waterworks is just across the river in Danbury but I’ve never been able to find their stuff at a discount.

chow · Posted: Sat Feb 17, 2007 9:33 am Post subject:

From a former customer of a construction loan, point of view-

M&T is:

da bomb!

Customer service is wonderful! My old boss works for them as a account executive in S FL. He's an independent soul, so I'd venture to say if he took a job with them, they have to be a good bank/lender. They are very choosy about the brokers they allow to sell them loans too.

If I built another house and went through construction to perm, they would be my lender again!

(This ends M&T's free advertisment :D )