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[151949]

I have been doing some research about these. My My there is a lot to learn. They are very expensive !  There are a lot of variables. We have built 2 homes in the past but both times the builder financed the construction and we just put down our 20% and got a conventional mortgage.The builder we are interested in now does not do this. They require you to finance the construction. 

Construction loans require you pay the interest while the construction is going on - the builder we like takes 10 months to complete a home so you would pay about $24,000 in interest  (or more) over that period. That is money down the drain. 

Also there are 2 ways to do it - one way you get the construction loan for 4.1%  and you pay the closing costs - then when the house is complete you get another conventional mortgage and have to pay closing costs again.So that's another $20,000 more or less down the drain. The other type is you get a construction loan that converts to a convential loan at completion of building so you only have to pay closing costs once - but the interest rates are higher over the entire term of the loan.

My DH & I are thinking this is just not really the best choice for us , no matter how much we love the house. They do build spec homes at this place but if you go that route you won't get to pick your colors etc. However, the spec homes all you do is get a convential mortgage where you put 20% down, & it's luck of the draw if they will have one available when we are wanting to buy.

I never had any idea financing the building of a new home could be this complicated.

[Kachina624]

@151949  Are you thinking of leaving your cozy Florida home and moving elsewhere?  Sounds like it could be a financial disaster based on what you wrote.  That $24,000 in interest would be enough to deter most people. 

[AuntG]

When I see that much money going down the drain just for the privilege to build a new home, I'd look for an almost new home that met most of my requirements.  Or, I would reevaluate whether a change is necessary.  If you like your neighborhood, maybe staying put is the most sensible thing to do. 

[151949]

@Kachina624 Honestly, I told my DH that I must be misunderstanding this - who would just throw away this much money? But he read it as well and he understood it exactly the same as I did. Clearly, we need to go to the bank when we get back in the fall, and sit down with them & have a conversation.

[151949]

@AuntG  I think we need to look at different builders in different plans who finance in a more conventional way, as  this expense on top of the price of the house is too much. We'd be paying much more than the value of the house.

[Carmie]

We built out house with a construction loan that converted to a conventional loan when we moved in.

the mortgage company sent out 4 checks made out to the builder and my DH and I over a period of nine months. We all had to endorse the checks.

 The first one was sent before ground was broken.  

The second one was sent when the house was completely under roof and water tight.

the third one was sent before the finishing materials went in and the forth was sent when the house was completed.

We paid interest only on the money that was actually paid.  For example, if you borrow 100 thousand, the first draw would be 25,000.  You would only pay insterest on the 25,000 until the next draw was made.  Then you pay interest on 50,000 and so forth.

You do not pay principal and interest on the whole amount you want to borrow until the house is completed.

i can't imagine that your interest would be $24,000 over a nine month period.  Our payments were quite low while the home was,being built.  You might want to get additional indormation from the mortgage company before you proceed by looking for a new builder.

Best of luck.

[AuntG]

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@151949 wrote:

@AuntG  I think we need to look at different builders in different plans who finance in a more conventional way, as  this expense on top of the price of the house is too much. We'd be paying much more than the value of the house.

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I agree and would walk away from this builder.

[151949]

@ Carmie - thanks for the input. We have been going along thinking this was exactly as you describe it but then we spoke to the sales lady and she said $64,000  5 times over a 10 month period, at 4.1% interest would be payments of $2475 a month on the interest, to start out.And every time you make a payment to the builder the interest goes up. Of course , if our current  house sold in the meantime we would be able to stop that loan and pay cash, but we'd have to rent somewhere. We have pretty much decided this is just too rich for us, much as we loved the house. We were expecting the interest only payments to be a few hundred a month not a few thousand.

[Mominohio]

I have never wanted to go through the mess and the hassle of a new build. I know a lot of people who have done it, and in my opinion, it simply wasn't worth it.

These kinds of 'fees' would stop me in my tracks. Just think how much all that money would buy in fixing up an existing home to your liking.

I know some people are really particular about not living in something 'used'. I've never understood that idea. Older homes are much better built than anything they will slap together today. 

Especially in retirement, I couldn't see 'throwing away' that kind of money.

[Allegheny]

@Carmie

That is exactly how it worked when we had our home built.  

But for us that was 30 years ago and I assume things may have changed somewhat.

We had our builder, but dealt directly with the bank when we went for the construction loan.  There were inspections done by the bank before the builder was given a payout.  At the end of the process our loan was converted from a construction loan to a mortgage after it passed all inspections.  We had one closing.