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Shopping for the construction loan

We have been slowly processing through shopping for a construction loan. I have talked with multiple banks during the process and its been pretty difficult to find something that works for us. A close friend was talking with me about our difficulties and he was fairly shocked that we were having problems, but that is just how the economy and the financial mess has affected those of us who have done things the right way. My friend’s point, and I think its a valid one, is that we are a dual-income family with stable, steady jobs; pretty great (maybe not fantastic, above 700) credit scores; a decade long track record of paying mortgages;  significant equity with the land we want to build on — and that’s just not enough for the national banks. Its pretty mind boggling. In a time when banks are unsure of who to loan money to (although they’ve accepted bailout money and have been told to loan), we — a family who has tried to do everything the right way — can’t get a leg up.

You’ll notice that I’m talking about the national banks – the ones who run their construction to perm loans through third parties.  Those third parties have imposed insane rules on families wanting to construct new homes – such as needing 30% in equity or down payment to build.   Most that I’ve talked to – BB&T, Wells Fargo and more locally First Citizens of SC – can only loan up to 70% of the value.  Wells Fargo was the only one who said anything about possibly getting 75% of the value in the construction loan, but only for the best qualifiers.

As a side note, USAA — a company I’ve written a lot about, and a company I really do still admire — doesn’t do construction loans and they never have offered them that I am aware of.  I’m not knocking them.  And I’m not knocking national banks – I have tended to use them more because I felt like I could get better service through branches in my home town and where I currently live.  We had banked with BB&T because they also had branches in Virginia, where Jen’s parents live.  But when it comes to this, the services they are offering just aren’t what we need.

Getting Local
I’d like to do my part to stimulate my local economy by employing some out of work contractors and trades workers to build a house for me, but after all the stimulus money and all of the bailouts, I’m finding no one who will help me undertake a fairly normal business transaction.  I have two other friends who contracted their own homes last year – 2008 – and both were able to get upwards of 100% financing.  Today, the best that the nationals can do is 70%.

Enter local banks…  Banks owned, operated and administered right here in Horry County.  I met with one of our local banks yesterday and by far, they had the best offer available for us.  They were also more flexible than the nationals.  This particular bank would loan up to 80% of the value of the entire project (including our land equity).   It may not sound like much, but 5% or 10% is a huge difference when looking at home construction.

I have had the sinking feeling since all this financial mess broke (no pun intended) that we were going to see a ton of localization occurring, and that is what I think is happening.  I think we have a shift from big business, big finance back to local, small business as a driver for growth, even on the financial side.  Who better than your local bank has a pulse on what the community needs?  These people live here with you and the board members making decisions on these banks are your neighbors, too.  And these banks seem to have a much greater desire to help out not only the borrower but the workers who’d directly benefit from a project like this.  And there isn’t shortage in my area – we’ve had many new banks open locally in the past decade – many of which I’ve passed over.

I work for a cooperative and from the beginning its been a business about meeting local needs — bringing telephone (and now other services) to areas that the big boys wouldn’t serve because of cost.  It is a community minded business and the decision makers live in the same community with all of the people that we serve.   I’m glad to find a bank with the same mindset.

We are not finished searching for our options.  There are several more banks to talk with, but I do feel more positive after my meeting yesterday.  At least now, I have narrowed my focus to the locals.  As my co-worker, David, told me the other day – “Dude, you’ve been here for a decade.  You’re a local now.”

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