Construction Loan Refinance

Although there are plenty of projects to do before the house is complete (let’s be honest…the projects are never ending for any homeowner.), refinancing the construction loan feels like it ends the building process.

A while back I discussed different types of financing for construction. The type of loan we used was a stand-alone construction loan. We decided to go with this type of loan because the construction-to-permanent loans had higher interest rates. It’s somewhat of a gamble to do the stand-alone construction loan as you don’t know if interest rates are going to go up while your home is under construction, but it ended up working out in our favor.

Essentially, our construction loan was a 5/1 ARM loan. That means the interest rate will be fixed for 5 years and then it will adjust on an annual basis. Refinancing a construction loan is similar to refinancing a regular loan; we changed from an adjustable rate loan to a 30 year fixed loan.

Knowing that interest rates are probably going to go up, we decided to refinance to a conventional 30 year mortgage. It’s always good to shop around for this, so I checked with three different lenders. I was able to get a lower rate with one of the lenders and I sent over the info to another lender to see if they could beat the initial offer, which they were able to do.

One tip for when you refinance is to use the same title company you used for the construction loan. We were able to get a discount on our title fees by going back to the same person, which was a good savings. Also, look at all the fees before you close. You should be able to get a closing disclosure that will show you everything. There were a few fees on it that our home lending adviser was able to remove.  By checking these we were able to save a couple thousand dollars on our refinance.

The whole mortgage industry can be confusing. How interest rates work, all the fees associated with it, who to ask what, etc. I’m not a loan adviser but hopefully this helps some. It’s always best to find a loan adviser that you can trust and is willing to answer all your questions. Don’t ever feel pressured to go with one option.

The advisers that are willing to tell you that their options are not the best when you give them a comparison are the good ones. We did our construction loan through Umpqua Bank, and the loan adviser we worked with was great. He was not pushy at all and when we went back for permanent financing he was honest and said that the offer we were getting at Chase was better. He tried to get a match, but was not able to, so he recommended we stick with the other offer.

With the construction loan closed and our permanent mortgage in place, all the small projects are up next. Our first focus is getting our other house sold, and then we’ll start working on the landscaping. It’s been a process to turn this house into a home; and although this is the end of a chapter, it feels like we’re just starting our story.