Client capitalizes on big savings on construction after rate drop

Loan officer: Bob Gerson, California Bank & Trust. Property type: Owneroccupied, singlefamily home in El Cerrito.

Appraised value: $1.2 million.

Loan amount: $700,000. Loan: Portfolio 10 / 1 yr. CMT indexOne Time Close 2 yrs. to BuildRate 3.375% no points.

Backstory: Although the COVID19 crisis has been a disaster for the world and the United States, the bond market and stock market provided a substantial drop in shortterm and longterm rates during the initial two to three weeks of the crisis.

This helped a client of mine who purchased a lot a few years ago and now needed a construction loan to build a new singlefamily home.

Part of this loan was vested under an LLC, which our bank does allow for owner or second home loans. The loan calculation includes the various costs such as architect drawings, city permits and more, along with the general and subcontractor hard costs.

We initially forecasted before an appraisal was completed a down payment of 20%, or $140,000. Fortunately, the land value more than doubled so that we were able to use the lot equity to offset all of their down payment and closing costs. A great feature of our onetime close is that they will only have to pay interest only during the entire construction phase as well as being charged only when they start drawing for the funds for paying on their construction invoices. The term of this loan is at 12 years. Two years to build and 10 years after the project is completed.

The clients had originally locked their loan back in midJanuary, but I was able to float their locked rate from 4.125% to an amazing 3.375% without any cost.

We all hope that we can return to some normalization soon.

Stay safe everyone.

Bob Gerson, California Bank & Trust, 4159023002, bob.gerson@calbt.com.