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  Dear
Dr. Don,
I am planning on hiring a builder to build my
home for me. I bought the land about two years ago for $95,000.
I have paid the land down to $69,000. I am going to the bank soon
to get a construction-to-permanent loan. How much money will I need
to put down for the construction to permanent loan? My loan will
also have to be a no-document loan. What should my interest rate
be around? My credit rating is around 800.
Thanks,
-- Jack Joist
 Dear
Jack,
Construction-to-permanent financing is often the best way to finance
new-home construction because you only have one loan application and
closing. You may be able to lock in a good interest rate on the permanent
mortgage at the same time you arrange construction financing. The
lock should be effective through the worst-case scenario for delivery
since an expired rate lock can't help you. The downside is that you're
a captive customer on the permanent financing and lose some negotiating
leverage in arranging your permanent financing.
No-doc loans typically require higher down payments
than standard mortgages. Your strong credit rating will help you
in getting lender approval, but a no-doc loan does change the loan
underwriting standards. Along with a higher down payment you should
expect the interest rate on the mortgage to be from one quarter
to one half of a percentage point more because it's a no-income-verification
loan.
I'd expect you to wrap the land loan into the construction-to-permanent
financing. The $26,000 equity you have in your lot will reduce the
amount of money you'll need as a down payment. Historically, the
construction loan has been an interest-only loan at the prime rate,
but lenders now offer interest rate options during the construction
period.
Although Bankrate doesn't publish interest rates for
no-income-verification loans, or construction-to-permanent loans,
you can see if your lender is competitive by shopping rates in your
market using Bankrate's
mortgage search and seeing if the rate you're offered is within
that quarter-percent to half-percent pricing spread.
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