We started the construction loan process in early October when we realized that our Chicago equity was disappearing. Approximately 75 days, or 1800 hours, or 108,000 minutes or 6,480,000 seconds later, we finally closed the loan this morning. I cannot listen cheerfully to senators blaming car makers for not being able to get a loan from the banks.
Our main misstep was in starting work before we got the construction loan although we had a small stumble over the appraisal. The bank worries about mechanics’ liens beating the bank in priority. We deal with that by getting lien waivers from all future subcontractors. Whatever.
We have nine months to complete construction, but it is supposed to be relatively simple to get an extension because the extension comes out of the first sixty months of our 5/5/5/5/5/5 ARM. (The 9-month construction loan and the first 5 years/60 months of our ARM are at 5.95%. If the construction takes longer, then the 60 months will be shorter, so that the total remains 69 months at 5.95%. We just pay down principal for less of the time so the P+I will be a little higher.) The ARM has a cap and a shoe (or whatever the bottom is — it will never go below 5.95%, which doesn’t seem so great given the below 5% rates we’re hearing about for thirty-year fixed, but it’s better than our current mortgage, since that one was for non-owner-occupied … even though we paid a point for that mortgage). It only recalculates every five years. I’ve had ARMs before without problems, and we’ve never stayed 5 years in a house, so it will probably work out. Assuming the housing market in northwest Arkansas doesn’t completely dissolve, we can also refinance without a prepayment penalty.
Oh, and we don’t have to make house payments during the term of the construction loan. But, we do have to pay all the accrued interest at the end of the construction loan, so we’ll either make house payments or we’ll put that money aside each month. (Or, I guess we could take a cash advance on a credit card. Not.) Knowing Don, I bet we’ll make monthly interest payments since we are allowed to.
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