tropicaljo Posted January 28, 2005 Report Share Posted January 28, 2005 Just before Christmas, DH and I applied for a new home construction loan. Our land is 1/3 paid off, been living on the property for 6 years in March, and paying 10% interest to a private party. DH's mid score was 667 and mine was 661. The loan originator said that our scores were great and that our income looked fine. The problem is that we are both self employed sole proprietors and use every deduction we can legally claim, which makes our adjusted income look alot less than our gross income. Also, all of our combined business income is banked in a single business account. Together, our businesses made over $65,000.00 before deductions. The loan originator said she'd checked out 2 of her sources and our app was turned down because of the self employment status, but that she had a couple of other sources to check into. Guys, we really need to build a decent home because the mobile home we are living in is getting pretty close to being inhabitable. Can someone give me some ideas on how to get this done? Link to comment Share on other sites More sharing options...
firstsource Posted January 28, 2005 Report Share Posted January 28, 2005 HI Jo,I don't understand the problem. You can get a stated income loan, all you have to show is that you have been in business for over 2 years, and those proofs will not be that hard to show. I addressed this a while ago, and your situation is exactly why lenders have developed Stated Income/NINA type programs. Charles Link to comment Share on other sites More sharing options...
tropicaljo Posted January 28, 2005 Author Report Share Posted January 28, 2005 Hey there, Charles, I've been reading alot about you this morning. Thanks for responding so quickly.I don't understand what the problem is either. The lady that is handling this said that if we wanted to buy a home then this would already be done, but because we want to build on our own property instead, she's having trouble finding a lender who will go 100% on a construction loan. Also, altho she's had enormous success in connecting borrowers with lenders for home purchases, she has very little experience dealing with a home construction loan application. This is so stupid because both of our businesses are home construction related and we have all kinds of connections to get it built quickly and cheaply. Link to comment Share on other sites More sharing options...
workinninetofive Posted January 28, 2005 Report Share Posted January 28, 2005 Hey Jo,That's what I was talking about in the PM. My situation is the same. I can't go with pre construction.. because they won't do that with stated. Charles told me about a loan, I believe its CTP construction to perm. In my case, I have to put down a deposit of 10% of my own money, finance the place when its up and pay for closing.. if I want to do it. Link to comment Share on other sites More sharing options...
tropicaljo Posted January 28, 2005 Author Report Share Posted January 28, 2005 Well, workin, that's what we were going for...construction to permenant. In June of '02 we went to a company called Colonial Mortgage and applied for this kind of loan and got turned down for poor credit rating. That's when I found out how bad our scores were. That guy said he'd like to see scores in the 640 range and now we have that. They were going to go 100% constr. to perm. with interest only until the house was constructed. I guess our best bet would be to go back to them. The reason we went with this woman is because she's living with a good friend of ours and she has a good track record with home purchase loans. Link to comment Share on other sites More sharing options...
choiceworthy Posted January 29, 2005 Report Share Posted January 29, 2005 100% financing on a stated income construction loan is difficult to place. When you say '100%' are you referring to the entire construction cost or are you referring to the finished value of the new home? Lenders usually go by the actual 'subject to' appraised value. If you are able to swing some deals, you can bring the construction cost down below the 'subject to' value enough to give yourself a little equity. In other words: if your existing mortgage is 50k, your construction cost is 100k, and the appraisal comes in at 200k, then your LTV is actually 75% even though you are borrowing the entire amount of the construction cost. Usually the appraisal will amazingly add up to the value of the land plus the cost of construction, but if you are in the business you might be able to shave some bucks.In case you are wondering what the 'subject to' value is, it is the appraiser's opinion of the value of the property after it will be built. He is furnished with plans and specs then 'comps' it to recent sales as if it was already built. The appraisal wll also contain an opinion of the value of the land as it sits which is what the bank will usually base their initial disbursement on (although I have heard of banks requesting a seperate land appraisal) As the construction proceeds, of course, subsequent disbursements will be based on the percentage of completion.Interest only during the construction period is pretty normal. Usually you are paying interest just on the amount drawn until the home is completed so your first payments are a lot smaller. Sometimes the interest payments are rolled into the the loan so you do not have to start making payments until completion.A typical closing scenario would have the lender fronting you from 60-80% (depending on the program) of the value of the land at the initial closing. This would cover any existing mortgage on the property then allow you to use any money left over to pay closing costs and give you seed money to get the project started. If there is no money left over after the existing mortgage is paid, you are pretty much behind the eight ball during the entire construction period unless you have some cash on hand to float you between disbursements or your contractors and suppliers are willing to wait on their money.There are some other challenges your rep is faced with also. You do not mention what you have for reserves but if they are light that will make the loan a bit more difficult to place. You mention that you are in construction related businesses. Do you plan on acting as your own GC? That could make lenders apprehensive also, unless one of you happens to BE a GC. As far as self employed income goes, what the underwriters are looking at is not your adjusted gross income but your income after adding back any 'non cash' deductions such as depreciation, depletion, or amortization. I assume your rep has your tax returns in hand and has already looked for any 'add back' income.Perseverance is the key. If the loan makes sense there is almost always a way to put it together. Hang in there! (sorry if I got long winded and told you a bunch of stuff you already know. I have learned to never assume anyone knows anything when it comes to construction loans. I am also basing my observations on only three or four banks I have worked with on construction loans. There are a lot of them out there and banks often have their individual ideas how construction loans are done.) Link to comment Share on other sites More sharing options...
tropicaljo Posted January 29, 2005 Author Report Share Posted January 29, 2005 No choiceworthy, I appreciate all your comments. I'm just beginning to learn alot of stuff I feel like I should already know, an real estate stuff is now at the top of my list. The thing is, we managed to snag this property 6 years ago for no money down and have paid a third of a $30k note (15 years at 10%). It's in a fairly prosperous area and property values are beginning to climb significantly. In addition, population growth in the area has increased significantly over the past 6 years (we're in NW Arkansas, and our area is rated something like the 8th highest for pop. increase in 2004). Our savings kind of suck right now because we had to pay for two unexpected funereals and a major truck repair, but our bills are still all current and the scores are still at the 660 range. I don't know...maybe we're just rushing it and setting ourselves up for another disappointment. Link to comment Share on other sites More sharing options...
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