Tag Archives: Banks

From the bank to the lawyer

Received word from the bank today that the package is being sent to the lawyer’s office.  I talked with the bank twice about details and I talked with the lawyer to let them know that the package is on the way.  We hope to be closed on the construction loan within about 2 weeks…

In the meantime, the builder has sent the plans to the engineer and the truss designer to have them start on those projects.  The builder is asking about placement of the home on the lot and so I have to look at the county’s GIS maps and decide how far back to place the house.  Decisions, decisions, but we are moving forward!

The bank called and we are approved

The bank called yesterday, and we received our second appraisal.  This time, the appraisal was in line with our costs to build and so the project is back on track.  We are excited to report that Conway National Bank has worked out great for us with our building project.  Given the appraisal results, we are in good shape to handle the cost of the build and anything that may come up, as well as pay off the small amount we owe on the land.  Right now, the feeling of relief is just settling in and we are just now realizing that the project is going to finally happen.  Jen and I had both mostly given up after a bad appraisal, a second bank turning us away and a third bank deciding that they didn’t like the amount of cash reserves we had (and giving no credit for having zero consumer debt!).

A few things that I have learned along this process:

  1. Banks don’t care that you are debt free.  When figuring your credit worthiness for a construction loan or mortgage, they want to see that you are less than x% gross incoming to debt with the loan.  Having no additional debt did not help us…  Because banks allow another 10% of your gross income towards the additional consumer debts.  I found, at least in our case, you are better off saving your money than accelerating your payoffs on consumer debt.
  2. Freddy Mac and Fannie May loans for construction are extremely difficult to get unless you have large cash reserves today.  While I think construction is the best way to put people back to work, banks or the government seem not to agree because they have made it nearly impossible for the average American to get one of these loans – unless you can put down 30% of the cost of the home.
  3. I had to work with local banks on in-house loans.  Although this means a two-time close, and probably higher closing costs, I was able to find terms that were much more workable to our situation.
  4. Appraisals are screwy right now.  This has little to do with who is doing the appraisal, and more to do with the market.   There is no delineation between a foreclosure, short sale and conventional transaction for appraisers.  Its all one big pool and so the foreclosure and short sales have brought everyone down (yes, I know — no duh! — read or watch the news).  But, I have also heard that appraisers are also doing their part and being intentionally conservative with the comps that they use on the appraisal.  I don’t know how true this is, but based on what I have been told and the results of our first appraisal – I find it to be true…
  5. There is no replacement for relationships.  Throughout the financing process, the places that have worked best for us were the places where the people knew me, knew my extended family (or friends), and knew my reputation.
  6. My credit score didn’t really matter…  Yes, I know this sounds really odd, but CNB didn’t care about my credit score.  They cared about my credit file and looked at each account and how it was managed and handled.  Jen and I both had excellent credit scores, and my past experiences led me to believe that these were good enough.
  7. Its a tough time for everyone.  Although Jen and I have been largely insulated from the financial meltdown for the last few years, we were greatly affected by it while shopping for financing.

We are extremely excited to be moving forward.

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.”

Hurdles cleared, now we begin making new plans

Over the past few weeks, we have been busily making plans since accepting our offer.  We have been looking at rentals and trying to make plans about where we go next and what we do next.  All of those plans have been tentative, at best, since we were waiting for the home inspection, the appraisal and other reports to come in on our current house.

We have finished the home inspection, which as we expected, turned up only a few minor items.  Many of those items are repaired already and all of those should be addressed by end of next week.

The appraiser has been onsite, and we have not heard anything from the buyer’s side, so we assume that all is well with the appraisal.

So, that brings us to new plans.  We have located a rental thanks to a co-worker at HTC and  we are looking to taking possession of it around first of next month and begin the moving process.

Now, all that we see left is just setting the closing date, which we hope will be sooner than later.  Jen and I are ready to begin plans on our new chapter in life and get things rolling with a builder and bank.  We are shopping for a financing package, and those are seemingly difficult in today’s economy.  So, with each hurdle we clear, new ones form on the horizon.  This is going to be a long process, I’m sure, but I think we are up to the challenge.