Converting Construction Loans

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Question:

A customer wants to sell his current house, with a $57,000 mortgage balance. He wants to purchase another house for $40,000 and borrow an additional $30,000 for remodeling expenses. Can we extend him a $70,0000 construction loan, with monthly interest payments, and convert the balance to permanent financing at maturity. Would it be better to make two loans, one for the $40,000 purchase, with monthly interest payments, and a $30,000 construction loan to be converted to permanent financing at maturity?

Answer:

I assume you are talking about making a bridge loan until the borrower's current house is sold. What you describe ($40,000 purchase and $30,000 home improvement) is certainly OK. It doesn't matter (from a regulatory compliance stand point) if this is 1 or 2 loans, but it would be easier to complete 1 loan when it comes to disclosures. I would suggest making this one temporary one followed by 1 permanent loan.

First published on BankersOnline.com 09/16/02