Asking this on behalf of a colleague...
Last edited by Mike Baker; 03/12/12 08:44 PM. Reason: clarification
Scenario: 5 year loan, with 1 year construction period, 48 month repayment period, with P&I based on a longer amortization period, whereby a balloon payment will be due. Purpose is for construction of owner occupied single family residence.
Apparently the loan terms place it in the "higher priced mortgage loan" category.
What I am told is that the loan processing area is saying that an estimated escrow amount must be added back to the initial loan principal ? [e.g. say that loan request was for $500,000 and estimated escrows are $5,000 then new loan amount would be $505,000?]
While, if what I am told is so, I say that it does not make sense, a wise attorney once told me that if it is the law, it does not have to make sense...
In my long ago past in working with construction perm mortgages, we made sure at the initial closing that a builder's risk policy was in place and that any taxes currently due were paid...then at the time of conversion to a permanent mortgage we established an escrow account [usually from the final draw although it could have been from outside cash from borrower].
However, we never changed our loan amount for the purpose of adding back estimated escrows...we loaned 80% of appraised value or contract price...we did not tack on estimated escrows and thereby cause the LTV to exceed 80%.
I am not thoroughly familiar with the provisions for higher priced mortgage loans, but even if for some reason you must establish an escrow account up front on a construction perm loan, would you not fund that either from other funds of the borrower or possibly from an initial draw from the loan [we did permit closing costs to come from the initial draw if the borrowers so elected.]?
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