Category: Home Loans

New Home Construction Loan

In 2006, my wife and I built our first home. It wasn’t a custom home – we built in a subdivision that had been created by one of the major builders in our area. Our new home construction loan was taken care of by the builder, and it was a very simple process. We like our home, but we’re afraid we’ll outgrow it within the next couple of years and it will be time to build again. We’d like our next home to be custom, so we’re going to have to educate ourself on the construction financing process. I’ve learned a few things so far.

First of all, construction loans on new homes usually fall into one of three categories:

1. The builder finances the home. Most builders of any size have relatively large lines of credit with banks that let them build the homes. When they complete the home the buyer is required to obtain a home loan on their own, and that loan is used to pay off the builder’s line of credit, as well as giving him his profits on the project.

2. The home owner takes responsibility for all financing, including the money to build the home followed by a permanent loan when the home is complete. In this situation the home owner seeks out a lender (usually a traditional bank, but I’ve seen people get private lines of credit from wealthy people as well) and secures a line of credit that will cover the amount of the construction. It’s rare that the bank will turn over the entire amount of the estimated construction cost at once; the home owner will usually draw on the line of credit as needed throughout the construction. They write checks on the line of credit to pay the builder as necessary.

Once the home is complete the home owner will have gone through a separate application process for a permanent mortgage (e.g. a 30 year fixed rate loan, etc), and when that loan closes the proceeds will go to pay off the short term construction line of credit.

3. Some lenders are set up to provide combination construction and permanent home loans. Meaning, the line of credit is drawn upon during the construction process (and ususally at a higher interest rate than the permanent loan will be) until the home is ready to live in. At that point the same bank will convert the loan to a permanent interest rate, and essentially ‘pay itself off.’

However you choose to finance your home construction loans, make sure you’re careful at every step in the process. When a bank gives you a blank check in the form of a construction line of credit, it can be very easy to make improvements on the fly, causing your home price, and your future mortgage payment, to balloon. A conservative approach to building your home will leave you with less stress in the long term.

Poor Credit Home Loans

Unless you live in a cave you know that the whole home buying game has changed completely. Gone are the days where anyone with a pulse can borrow almost any amount to buy a home with no real scrutiny of their ability to repay that loan. And thank goodness. I think we’ve all seen that such loose lending practices put us all in a tough situation in America. A return to to conservative lending practices may not be as fun in the short term, but it keeps us all healthier in the long term.

But is the dream of home ownership dead for people whose credit has been damaged? Actually, no. Poor credit home loans still exist, and they always will. But if you have bad credit and you’re determined to buy a home, be prepared to run the gauntlet with the banks before you sign the closing documents and receive the keys.

I believe the home loan qualification process will take on a much more personal feel again. I can see more and more situations where prospective borrowers go to their local bank or credit union and go through a relatively extensive interview process with mutliple loan officers. After all, on paper these bad credit borrowers don’t look good. So if they’re going to get a home loan for poor credit it’s going to be because they can convince a lender that their past is not a reflection of their commitment to being healthy borrowers going forward.

Here are a few things you can do if you really want to qualify for a home loan for people with poor credit:

Show the bank you’re taking obvious and meaningful steps toward improving your credit worthiness as well protecting your ability to make your mortgage payment on time, every time. For example, have you sold off some of your debt? Have you unloaded that expensive SUV and traded it in for a smaller, more economical car? Getting rid of your expensive cars will not only improve your debt to income ratio, it will show the lender that you’re committed to making your mortgage payment a high priority. The same would be true for credit card balances. If you have consumer debt on things like furniture and electronics, sell them off as fast as you can. You want to show the bank that you can make sacrifices in order to have a home.

Be patient. Unfortuntely, going into debt and ruining your credit take very little time compared to what it takes to get out of debt and improve your credit. Are you willing to follow a path of discipline and sacrifice for the next two or three years (or even five years) so you can own the home you’ve dreamt of? I hope you can see a day in your future when poor credit home loans aren’t even a consideration for you.

Mobile Home Loans

Now that mortgage providers in the US have tightened up their lending practices so much, most prospective home buyers are going to have to come up with at least a 20% down payment in order to qualify for any kind of home loan at all. Average home prices on a reasonably sized home are almost always going to be over $200,000 – so most people will need upwards of $40,000 to begin their American dream of home ownership. That’s just not realistic. Some are downsizing their dreams slightly by looking into purchasing a mobile home, which means they’re investigating mobile home loans.

What most don’t realize is that mobile home financing isn’t all that different from a traditional mortgage. You’re most likely still going to have to come up with a down payment, have a decent credit score and history, and be able to prove an adequate income to handle your payments.

That being said, mobile home loans with bad credit do exist. The terms aren’t going to be as appealing, and your payment will likely be higher, but you could still qualify for a loan under the right circumstantces. One way to get mobile home financing for bad credit is to ask a trusted friend or relative to co-sign with you. There are some real advantages to doing this.

First of all, if your co-signer has decent credit you’re going to qualify for a more favorable interest rate and therefore a lower payment. Secondly, the credit reporting agencies really favor people whose names are on a mortgage, so your credit score will improve quickly as you make your payments on time.

But what about mobile home refinancing? If you’re already in the process of buying your mobile home and you need to go through the refi process, you’ll find plenty of mortgage companies to help you out. You’ll be able to choose from refinancing your mobile home with cash out, refinancing for a better interest rate, or both. Maybe you had poor credit when you originally bought your home, but several years might have passed and now your fico score has improved to the point that you’re ready to get a new low rate mobile home loan.

The point is you shoud thoroughly research your options and then choose the loan that’s right for you. Make sure you investigate several lenders – competition works on your side in the world of mortgages. Don’t settle for anything less than the best possible interest rate and fee structure.