There is more risk involved in a construction loan than purchasing a completed home. The primary issues are "will the home ever be completed, and will it have the value the appraiser said it would a year before once completed". In a flat or rising market, the home value should be good. In a period of uncertainty, who knows? This is why the pricing is higher on a construction loan than an existing home.

Most loans are priced where you can pay fees to buy down the rate, or go with a no/low fee option. The choice to pay the fee or not depends on your holding period. From what you describe, bite the bullet and pay the fee. You will make up for the fee in a few years, usually 3-4 years, due to lower interest expense. (You need to figure the fee as the cost of interest).

For example our rates on Friday were 5.875% with a 1.125% fee and 5.625% with a 2% fee. Similar to what you discussed, but this was based on 80% loan to value (LTV) and a 9 month construction period.

Assuming a $200K loan total interest costs over 4 years for the low fee option were $2,250 for the loan fee and $45,783 in monthly interest expense, or $48,033 total.

For the low rate option the fee would be $4,000, monthly interest of $43,782, and total interest cost of $47,782.

This assumes that you pay the loan fees for both loans out of pocket. All other closing costs like title and appraisal would be the same. It only took 4 years to make up the $1,750 in excess fees, plus an additional $251 in savings. The longer you hold the loan, the more you save.

You will pay the fee, one way or another. The choice is yours, depending on how long you plan to hold the property.

As far as the low loan to value, check around with other REPUTABLE lenders. 80% should be pretty easy to find out there as long as your credit is good.

Approvals for construction loans are also set to a higher standard because of the uncertainty of commodity costs. Copper and lumber prices fluctuate, plus very few "build for" or custom homes are built without change orders. Change orders add up, and you will need to have additional cash available to cover these if your loan was approved at the maximum LTV.

As far as the modular structure is concerned, give it away or sell it dirt cheap. Put it on Craigs List and some mobile home park owner or slum lord will come and get it. Many lenders will not begin construction on a property that contains a mfg home. Plus, you don't want a dumpy home there to bring down the value of your property.

On the subject of a two loan process, you can do it, but it will cost you more. You will pay twice on the appraisal and title fees, plus the loan fee. There are advantages to this, but also risks.

The advantage is if you get a construction only loan, do it with a Community Bank that holds its own paper. If you need to extend the construction period, make changes to the amount, etc, dealing with someone in your community is much easier. The chances of changing a conventional construction/perm loan that will be sold on the open market are slim, meaning that most likely that you'll have to start all over again, or it will be costly.

One of the risks is that rates may increase higher than what the 9 month lock would have been in an all-in-one construction/perm loan.

Not looking for loans folks, just answering a few questions. Your mileage may vary.