Construction Loan at 90%. How can I get 5 or 10% put back in the loan?

Question

Let me be more specific. My husband and I have applied for a construction loan to build a house. The loan amount that we asked for is $190,000. The loan is a 90% loan and we are supposed to come to the table with 10%. In the beginning, the mortgage banker mentioned something about if the appraisal of the land and house comes back high enough, at least $20,000 more than the loan amount, she would be able to put "back into the loan" so we wouldn't have to come to the table with so much. It appraised for $255,000. I don't know what "back into the loan" means, that was just her wording. Does this exist? How can we find out if we can come to closing with a lesser amount than $19,000? Also, if we have to bring the $19,000 to closing, are we then only financing $171,000 since we are paying $19,000? Can someone please help me understand? I want to be able to understand how at least some of this process works. I do know that our interest rate is 8%. Any info. I would appreciate.

Answer 1

You sound confused and therefore your question was a little confusing...

You applied for a $190,000 loan. That is the amount of the loan. The 190,000 is 90% of the value of the property (or LTV) indicating the property should be valued at $211,111 for the math to work out. Your ten percent is actually $21,111 (not 19,000).

In addition to your downpayment of $21,111 you will need closing costs which are generally 3-5% of the mortgage amount (another $6000 to $10000). You will need between $27,000 and $31,000 to close this deal. You should have been clear on this before you did anything...

8% isn't a great interest rate. Does the construction loan convert into a standard mortgage or do you have to get a standard mortgage now? I have never heard the term 'back into the loan'. I suspect it means that you could finance more because the property is worth more. Doing a LTV of 90% means you can borrow 225,900. You could avoid PMI with a loan of $204,000 (that would be 80% financed).

You need your mortgage banker to clearly explain your options and when she uses a term like 'back into the loan' you need to stop her for clarification.

good luck!

Answer 2

Your loan officer means that a loan on say $230,000 at 90% would equal less than a loan at 90% of the properties end value after construction is completed if the properties value equaled $255,000.

All you need to do is claculate 90% of the property's value for both both estimated amounts to see the difference for yourself of the loan amount they will grant you.

Hope this reads easily...

Answer 3

I even have outfitted countless properties, and am development one now. I clearly doubt you will get much less then 10%, because of fact even that's phenomenally low. you're procuring it already in that best interest. 8% is outrageous! i'm no longer even paying 6! I want i'd desire to keep it after shape, yet needless to say I would desire to transform purely like all and sundry else.

Answer 4

Your numbers aren't adding up as you have them laid out here. What is the contract price? What are they figuring as 90%?