Q. My husband and I are trying to get a loan to build a house. We are scared to death about these interest rates going up. What about these all in one loans? They combine the construction loan and the long-term loan so that you only have to pay closing costs once and you can go ahead and lock in an interest rate? It sounds very good but I've heard that it's not because they charge a lot of other fees.
A. As with any loan, you’ve got to shop to be sure you’re getting the best deal with a “single-close” construction loan. Your interest rate on the mortgage should be comparable to the going rate on a traditional purchase, and the construction loan is generally an interest-only loan with the interest rate tied to the prime rate.
With regard to fees, most lenders claim that their fees are comparable to those charged for a traditional loan, but this is where you have to do the fine tuning. Get quotes from at least three lenders that include all fees and charges and make comparisons. And don’t be afraid to ask questions.
We recommend that you talk with lenders that have a loan officer who specializes in this type of loan. And remember that even if the fees are a little higher, the cost may still be less than getting two (or three) separate loans that would each have their own sets of fees and costs.
Q. Can you tell me what the likelihood is, as a current homeowner but having filed bankruptcy in the past year (keeping my home and my car and those obligations current), that I could get a new loan to move into a condo with the same mortgage company. In other words, do you think my current mortgage company would be able to extend a loan to me? Also, will the amount of my proposed loan be affected by the bankruptcy? Will I qualify for a smaller loan even if I may be able to make a substantial down payment?
A. Lenders consider each loan on a case-by-case basis. Your mortgage company may be willing to loan you money for a condo, but you shouldn't expect any special consideration because you are a current customer. If you apply for a new loan, it will evaluate your credit report and credit score as if you were a new customer. While they will reflect the fact that you've kept your mortgage and car payments up -to-date, they will reflect your bankruptcy filing, too.
You don't say how long you've had your current mortgage, or what interest rate you are currently paying. But there are two reasons a new loan will almost certainly come with a higher rate:
- Mortgage rates have steadily risen over the past two years. The average cost of a 30-year fixed-rate loan – the most popular way to finance a new house – has been just below 7% for several months now. This time last year we were paying 5.61% and in June 2003 rates had plunged all the way down to 5.28% -- the lowest since Interest.com (and its ink-on-paper predecessors) began its weekly survey of major lenders in 1985.
- Because of your bankruptcy, you probably won't qualify for any lender's best rate. So expect to pay a penalty of at least two or three percentage points. The worst case is that your credit report is so badly damaged that you'll only qualify for what's called a sub-prime loan, which charges high-risk borrowers as much as 13% or 14%.
How much you'll be able to borrow will also depend on your credit score and the appraised value of the condo you want to buy. Having a substantial down payment will help, possibly a lot, because statistics show the more you put down, the less likely you are to default.
The bottom line: Apply to four or five lenders, not just your current mortgage company. Compare the rates and other costs to find the best deal. But don't be surprised if your new loan comes with a significantly higher interest rate.
|
e-mail article
print article
