construction – permanent loan?

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I have a vacant land with 1st mortgage loan of $ 200k with BB&T.I applied construction loan through same lender BB&T. At the settlement table I realized that I applied construction – permanent loan instead construction loan ($ 400k). I asked loan officer and he told me that was the right and only way to create a construction loan. They refinanced my 1st mortgage of $ 200k – that was a same lender – and created $ 400k construction loan.

Q1.What do you think? Was that a right way to do it?

In the loan application loan officer marked just Construction – Permanent Loan. As I mentioned earlier they refinanced my existing mortgage.

Q2.They did not have to mark on Refinance section?

I believe that there will be a draw schedule for construction loan.

Q3.It did not have to show all detail about construction loan on HUD?

  1. Reply
    May 17, 2011 at 7:17 am

    Do you own the land that you are building on ? no liens? Just wondering, I had to buy my land before I could get a construction loan,
    but that was 24 yrs ago.. Just wondering.

  2. Reply
    May 17, 2011 at 7:55 am

    Dear Sung,

    Your lender was not only within their rights to restructure your financing, but, I seriously doubt you would have construction lenders willing to accept a second lien position behind your original financing. It certainly was not the only way to put the deal together, but obviously the manner that minimizes the lenders potential risk. In this manner they maintain you as a customer as opposed to dividing the loan and giving you an opportunity to refinance the second $ 200,000 at some future point. Obviously, they could have subordinated the first lien to the construction lien, but now they have arranged take-out financing to minimize risks all around.
    You are free to walk away from the proposed deal but do you expect, in this market, to other lenders ready, willing and able to commit to both a construction and take-out loans?

    You should be shown a draw schedule to show your construction engineering foreperson to ensure it meets your required financial needs at the important relevant times.

    The disclosure requirement for construction loans are not a severe as those for consumers. It should not surprise you that there exists missing details, but this is an appropriate time to investigate, with your legal counsel, the specific applicable disclosure requirements to answer your questions and mitigate the likelihood of future unwanted surprise. You may be provided additional paperwork in connection with the take-out financing.

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