Your questions about construction loans

Wize Guy answers:

So that the owner also shares the risk. You now have 20% to lose. With a 100% loan, what do you care if the project goes bust, you just declare bankruptcy and move on. The bank is then out their money

Wize Guy answers:

I don’t think there is a simple model, as both use a different base for their base cost.
However, Prime and LIBOR are different, but in general LIBOR is 2,25 lower than Prime. (has been since around 1990).
The loan fees, you can probably calculate, for the LIBOR and Prime, you could use the figures from last 10 years as a guide.
If rates rise drastically, Prime might become more interesting, as the difference between LIBOR and Prime becomes smaller at higher rates.

You can compare both at this site:

http://www.briefing.com/morningstar/mtgdata/prm_lbr.htm

So, I guess Prime +0.5 is 0.5 higher than LIBOR +2.25 if it is 3 month LIBOR you are talking about.
Also compare the fised periods, maximum rise or drop per period, and the fees.
It is a complex picture, but as long as you strick to the main lines, you’ll be able to figure it out. If not, don’t hesitate to PM me.

Wize Guy answers:

Yes there are. You must have money in the deal and a good exit strategy.

Wize Guy answers:

indymac federal bank.

Wize Guy answers:

We just did this and just finished our house. I know there are many different types but with ours we paid the accumulated interest every month (and only paid interest on the loan during the construction period). Each month we would turn in our amount to be reimburst, and we would pay the interest on the total amount that was taken out so far. So in the beginning it wasn’t bad… but towards the end was. In most cases the construction loan has a higher interest rate than when you roll it over to a mortgage, so those last couple months are brutal. And we actually paid more those months than we actually have a monthly payment now. But seems like when were looking every bank had their own version of a construction loan, so be sure you check around.

Also we moved into our house before it was done so we could save almost 3 months of paying both payment (although we were renting at the time, but our rent was still just as expensive as a house payment). Luckily we had a basement we lived in (had no real kitchen for a month or carpet) but we had a working bathroom so it was okay. Being that it was just me and my husband we could do it, but if you have kids i am sure it would be much more difficult