Construction Loan Application- Our Experience

Two weeks ago, Mike and I sat down with the bank.  Now, I know many of you know of the troubles we had with this same bank (different branch) in trying to set up our construction loan.  They plugged everything they needed to into their computer and they were magically coming up with closing costs of over $30,000!  Needless to say we were quite upset about it seeing that we’ve already dumped everything we have into the land itself and the improvements that we’ve made on it (ie the driveway).  Even though we told these two individuals that we shouldn’t have to come up with anything considering how much we’ve already put into the property and the fact that we’ve owned it for over a year, they didn’t do anything about it.  The people we worked with had never done a construction loan before- so they didn’t really understand how they are supposed to work.  Our benefit was that we had talked to a woman at that same bank about a year before and she had given us a bunch of information on what kind of closing costs we’d have and how the construction loan works.  Unfortunately, this woman retired, so we had to go to this set of people that had never done one before.

That was in late February, just before our wedding.  They had submitted our application even though we asked them to hold it until Mike and I could decide what to do.  Once it got submitted, our credit was checked…awesome.  We pulled the application so that Mike and I could get some answers on this stuff before we officially got the application into the bank. 

We got back from our honeymoon and started to set in on this project again.  This time, we decided to call around to other banks, get more information, and make sure that we are covered so that we don’t have to come up with a ridiculous amount of money just to try to secure a loan when we already have put so much into the property.  I called around to a bunch of different banks- many don’t actually do construction loans anymore.  The couple of other banks that I talked to had some very strange and ridiculous rules- obviously protecting the bank, but in no way allowing us to build with a clear mind- it would’ve been a constant worry if we weren’t busting butt.

So- we were back at the original bank.  This time, I talked with this guy (who I actually talked to right after we asked the other two to put our application on hold until we figured out what to do) and he was much more knowledgeable.  He had done construction loans before, but it’s not something they do all the time- which makes sense seeing that people aren’t really building right now.  So we set up an appointment with him for March 16^th to start the process all over again.  Come to find out- he needed to leave so we were sent to a young lady named Betty. 

I won’t lie, we were really nervous because she hadn’t done very many construction loans either and said herself that she would be using Mortgage Support to help her through the process, which is what the guy that we were supposed to meet with, advised.  Mike was pretty tense at first.  Betty was a real sweetheart.  We explained to her everything about the property, what we paid for it, what we put in for improvements, and how long we’ve owned it.  Mike explained that we were told by this woman about a year ago that there would not be a need to come up with anything upfront for a down payment since we had paid so much on the property already (and this was BEFORE we made changes to it!). 

Betty understood and we finally got to a point in the preliminary check of what our closing costs would be.  They looked MUCH better, but still included things like the Transfer Taxes and Title Insurance, etc.  We already paid all that when we purchased the property so why is it on there?!  Needless to say, the mortgage application at TD Bank is NOT friendly if you are looking for a construction loan.  Anyways- we agreed to the closing costs with the understanding that a few items would disappear and we started the application process.

Mind you, at this point, we sat there trying to figure out the closing costs and trying to make the numbers work for about 45 minutes.  I had left work at 2 to try to get back for 3.  Keep that in mind as we go through the next steps.

Betty walked us through the application.  We told her what we were looking to borrow, the value of the land (which we kept saying the original asking price plus the improvements we’ve made), and how much we still owe on the property.  We get to the closing costs part again and it has a ridiculous closing cost again (upwards of $30,000).  What the heck is going on?!  So on the phone with Mortgage Support and we go back through the beginning portion of the loan again to try to fix it.  A woman that works on loans often came into the bank at that point too and Betty pulled her in to try to help as well since the numbers weren’t working for us.  We finally figured it out and the young lady that helped us went to her desk to work on other stuff, and she let mortgage support go. 

That’s when her computer froze- completely locked up.  At this point it was already 3:45 PM and I’m in a panic thinking – they’re going to kill me at work!  So- we had to start the process again.  At this point, we’ve worked the numbers 4 times to get the closing costs to be agreeable- where it’s not $30,000 that we have to come up with.  If we had that kind of money, we probably wouldn’t be asking the bank for a loan- just saying.

So- we start it again.  Had the same problem AGAIN!  Betty called Mortgage Support again and got on the phone with a woman named Amy.  She was good.  What was happening was our land was being counted twice.  We do owe on it, but we put what we owe into the cost of construction to cover what is left over on the land.  That’s not what was messing up the mortgage application- in fact, it was two little BUTTONS that say- is the property mortgaged and is there money owed on the property.  If these are checked, it goes into closing costs.  Ridiculous!  Even Betty said that this was the most ridiculous form for a construction loan and it wasn’t friendly to our type of situation.  I don’t think using that form would be friendly to anyone period unless you were trying to buy a regular home.

We finally got through the process.  They ask some very odd questions like- what’s the value of the project… well what we are going to put into it is this- but it will be worth more than that- obviously.  Well, they want to know what it’s WORTH.  How the hell do we know?  We are not appraisers!  So a rule the bank has is they will support the land + 80% construction costs.  Our situation is different because we already own the land (and we thought this was the best, easiest way to get this done and be ahead of the curve). That being said, we need to have our house appraised at X amount in order to be able to cover what we project our construction costs will be plus the closing costs (which are small, but we’ve dumped every penny we own into this project.  The funny part in all of this is we asked for a loan on a total amount with labor- but we will only be using a small portion of that labor because Mike, myself, and whoever wants to help us, will be doing the work… will you work for Pizza and Beer?! J  Anyways- our estimated project cost is actually much higher than what we need because of the labor that’s built in. 

Regardless, we do need the appraisal to come in high so that we don’t have to come up with ridiculous closing costs.  By the time we gave Betty our life stories and signed away our first born so that we could build a house, it was 5 PM.  I missed three hours of work because the application system that TD uses is not user friendly at all for construction loans.  I thought I was going to die… Got back to work just past 5 and stayed till about 7 to make up for some of the time.  The nice thing is, my coworkers understood.  I didn’t get any real heat and explained what happened to the team manager and he was pretty cool with it.  I still felt super guilty, so I stayed to make up some time, then I made the rest the next week.

This whole process has been a bit of a nail biter since the start because there are SO many unknowns.  And you should see the PAPERWORK involved- holy CRAP!  I’ll make that a separate post- it’s just too much to keep going now.  I think it’s important to know what kind of paperwork is involved in a construction loan so that you understand what is expected.  We went to the bank with everything we thought we needed including specs, plans, plot plans, amort  calc on the land and payment history, the entire packet we received from the closing on the land to begin with- including the title insurance, tax returns, my pay stubs for the past month, ID, and septic approval.  We don’t currently have a building permit- that comes next week when we go to the town for it.

Building our home, one step at a time, learning patience, and loving more.