It has been almost two months now since the last update and quite a few things have happened. Approximately a month ago our final plans were completed and forwarded to the bank so an appraisal could be ordered. We also had received some preliminary loan documents which didn’t look all that promising. You see, the way the bank is calculating what they are willing to loan us is very weird in my opinion. I mean, I am not a business major, so maybe I just don’t have a clue (that’s a inside joke between my spouse and I).
So here is how it is working. We are trying to get this loan processed by coming out of pocket at little as possible. If we are lucky maybe none at all. I am told the loan to value is computed by taking the cost to build and adding the value of our lot. They compute the value and then calculate the amount they are willing to finance. So here is where I am confused. The difference in the overall appraised value after construction, which we received today, and the cost to build is well over $100K. However, in the appraisal, the lot has a listed value of $75K with improvements of $15K. Now in my book that adds up to $90K. The bank, however, is not giving us any credit for the improvements. What does that mean to us. The bank is cutting us short over $25K in value, and if we were to use this for the loan we would have to come out of pocket approximately $25K. That just isn’t what we want to do!
The plan going forward now is to switch back to a local bank. It is a great hometown bank, but unfortunately their rates aren’t always the best. However, they use the actual appraised value for calculating the loan to value. In the end it makes it where we will have to put nothing or nearly nothing down to get started on construction. Our interest rate will be slightly higher, but I guess that is just the price you have to pay for small town banking convenience. The next steps are completing the paperwork and then moving on to closing. This causes a small delay, but I think in the end it will be worth it!