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Was told you need a higher FICO for contruction loan?


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I am in the process of rebuilding my credit. I want to build a house next year (living in a rural area there are no decent homes to buy). A broker told me that your FICO score had to be a little higher for a construction loan than for a regular buy the already built house mortgage. He said that you need a FICO of 650 in order to build a house.........is this true?

I already own the land and have around 10,000 in my savings---good, stable job--10+ years, gross around 5,000 per month (my salary not my husbands) BAD FICO scores middle score 562....what are my chances?

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There are lenders who give construction loans with sub-620 scores but the terms are very sub-prime, I'd even say on the verge of being hard money like (a lot of fees, not an attractive interest rate) but it will allow you to build your home. Otherwise when you get to a 620 level there are a lot more construction lenders that will loan you the money needed to build, depending on the equity you have in the land and the future appraised value of the home, you might even get every cent needed to build the home so there aren't anymore out of pocket expenses on your part.

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Hello Fico,

I am also intrusted in building my home. But I don't know what to do. I have land/lot that is paid in full... I'm just waiting to build a house. What I don't understand is that value of the land-equity... Why does that mortgate company care about that and why does that benefit me....

Any help is welcomed....

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Romeol99 why are you waiting to build a home? Did someone tell you that you can't build now?

How much for & when did you buy the lot?

Have you figured out who you want to build your home?

Have they told you how much it'll cost to build the home?

Do you know how much the home's future appraised value would be?

How is your credit?

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The nice thing about your situation is that when you put a home on your land it can be treated as a refinance. Depending on your credit scores there are even what is called a "one time close" available to you. What that means is that you get a loan that is interest only until your home is built. During that time the builder takes "draws" to pay for the work as it is completed (foundation poured-he gets his money) When your home is completed you end the construction period of the loan and the loan is converted into a regular conventional loan.

The WONDERFUL thing is this. Real estate and Mortgage math is different in an aspect that lets say your lot is worth 50K. You put a 100K home on it. Under normal circumstances it won't be worth 150K. More like between 170 and 185K. So the final loan is figured with the value of the home. In other words, lets say that your home is worth 165K completed. You can borrow 150K and have a loan that is only 90% of the value of the home. This is better because the rates and programs are better for you. Lets say that you are lucky and the home is worth 185K. Now you are borrowing only 80% of the value. No need for Mortgage Insurance or a 2nd.

So. Good job that you already own the land. Makes things much better for you.

Charles

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I really don't know what to do? I haven't build a home yet because I'm still searching for the right builder. I don't want to get screwed. I've heard lots of stories of builders buiding homes completely wrong!! I'm scared of that....

I bought the lot for $12,000, however, it's now worth $30,000. That's how much the city appraised it for. I believe a bank will appraise it for more.

NO.. I sill haven't found the right builder. What I don't get is why do I need 2 loans. 1 for construction and the other for mortgate????? And how does the land equity benefit me... Does this mean I have to sell the land/lot to the mortgate company so they can finance me.

My limit is $90k to 110K for the new home. I live in Houston so a house shouldn't cost much compared to California.... The housing market in Houston is not over priced yet... But it's getting there....

My credit scores fall in between 750 and 769...

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Yes Romeol99 you look to be in a good position to do what you want to do. Charles gave some excellent advice as far as just needing 1 loan that will serve as the construction loan during the construction period, then will convert (not refinance) into a perm. financing after the home is built, quite a few lenders offer that type of construction loan so finding one shouldn't be hard.

There's no selling of the land back to the bank, the equity in the land can be used to help qualify for the one time close construction loan. For example since you have great credit scores, you wanted to get a conforming 30-year fixed rate, the equity in the land might get you to a loan-to-value (LTV) of 80% or less when the lender determines how much of a loan you'll need to build the home (for example they determine you need $100k and the completed value of the home is $125k or more, you'd have 20%+ equity, or just 80% or less LTV), so you could get yourself a very secure & low rate.

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I really don't know what to do? I haven't build a home yet because I'm still searching for the right builder. I don't want to get screwed. I've heard lots of stories of builders buiding homes completely wrong!! I'm scared of that....

I bought the lot for $12,000, however, it's now worth $30,000. That's how much the city appraised it for. I believe a bank will appraise it for more.

NO.. I sill haven't found the right builder. What I don't get is why do I need 2 loans. 1 for construction and the other for mortgate????? And how does the land equity benefit me... Does this mean I have to sell the land/lot to the mortgate company so they can finance me.

My limit is $90k to 110K for the new home. I live in Houston so a house shouldn't cost much compared to California.... The housing market in Houston is not over priced yet... But it's getting there....

My credit scores fall in between 750 and 769...

I'm curious why the limit is only 90-110. Even in Houston that'll be a very small home.

I'm curious which builders you've looked at (and more importantly what custom builders you find at that price point)

Good Luck!

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Thanks everything for the help... That was very helpful information!!!

Maybe I can evite ya'll once I finish building the house for a view drinks..lol... THANKS AGAIN GUYS!!!

ybrew:

The house isn't too big or too small.. I think it's just right for me..

I got an estimate from Progressive Builders. The House size is aproximately 1800-1900 square feet.

That's just one estimate... I plan to keep searching until I feel I'm getting a reasonable price.. But so far, progressive builders is at the top of my list.

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Thanks everything for the help... That was very helpful information!!!

Maybe I can evite ya'll once I finish building the house for a view drinks..lol... THANKS AGAIN GUYS!!!

ybrew:

The house isn't too big or too small.. I think it's just right for me..

I got an estimate from Progressive Builders. The House size is aproximately 1800-1900 square feet.

That's just one estimate... I plan to keep searching until I feel I'm getting a reasonable price.. But so far, progressive builders is at the top of my list.

That's certainly not small, and what I would consider quite large for that amount of money. I may need to lookup that builder.

Does that include setting up utilities on the property?

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The builder is building a beautiful brick house one block from where my parents stay at. That's the only way I found them. If it weren't for that, I would have never found them.... But the house he is building a block away is over 3000 sf. When I called him, he tried to convince me to go for at least 2500 sf. But I told him that's too big for me....

Yes, that includes everything except the garage... The cost is separate.

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The builder is building a beautiful brick house one block from where my parents stay at. That's the only way I found them. If it weren't for that, I would have never found them.... But the house he is building a block away is over 3000 sf. When I called him, he tried to convince me to go for at least 2500 sf. But I told him that's too big for me....

Yes, that includes everything except the garage... The cost is separate.

Do they have a webpage? Where is the house they're building? I live and work in Houston.

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