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Financing


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By William in Celebration, FL on 3/27/2007


A free piece of advice - if you have any money of your own, never ever sign any financing until the second the town is really ready to give you permits - because the fine print in your financing contract will not warn you enough about this:

If you go beyond a year - and it can well take a year to get permits - then your construction loan time may be up - and to continue, you might have to pay allonges on the order of $1,600 per three-month extension and you may face limits - like 450 days max from start - leaving three months for construction if your permits take a year. Add for all that time you are just chasing a permit - if you have financing - they will add about $200 a month in insurance to your bill - if you do not already have it - and at this stage I doubt you need it.  If you face the 450-day limit, you may see clauses like - then the whole loan is due if you are not done, and they can charge you the maximum legal interest rate for your state from then on.

Watch for prepayment penalty clauses - those can kill you. If you borrow $5K on a $500K construction loan and decide to chuck it all - that prepayment penalty could be 2% of $500K - or $10,000 you owe - not 2% of $5K.

So - let's say you sign a deal - and take a $40K draw and UBuildIt gets $10K and you bank $30K for a year while you chase all the permitting. What could that cost you? Hmm - $200 a month for insurance, $200 a month for interest, $10K on prepayment penalties when you realize your mistake, $14K on wasted closing costs when you refinance with a company with no prepayment penalties, or maybe $600 a month in allonges to extend to a deadline that you miss, which sets you to a new interest rate only the Mafia would understand.


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