topic Re: Help! Construction loan/VA loan questions in Mortgage Loans

Help! Construction loan/VA loan questions

armywifelong03 — Tue, 12 Mar 2019 13:51:55 GMT

Hello all! I need some guidance.

A little backstory.... We are building a custom home. We applied through our local bank last year and were immediately underwritten and approved for the VA refinance after the construction was complete.
When it came time to approve the construction loan, though, they wanted us to pay off some of our credit cards because they worried we would have trouble keeping up with our payments, interest payments on the construction loan and take care of things that came up along the way.

We did have a lot of credit card debt, but have over $6,000 in residual income each month, so we didn’t see it coming.
So, we got started but immediately felt overwhelmed by trying to pay off all of these different cards.

To speed up the process, we got a personal loan from NFCU with a much lower interest rate. We paid off all but three cards, but these three are our biggest. We are going to apply in July/August, so we just want to know our best bet moving forward.

Do we:
A) throw all of our money towards the personal loan to get that paid off and maybe one other card?
Or
B) pay a little extra on the loan each month but throw most of our money at the lasy three cards (two NFCU with big balances) and our USAA Amex. This would eliminate all of our cc debt. And we started with a TON.

So, I guess I’m looking for some experts who could let me know what you would rather see when you’re working on a file.

Sorry for the long post. Thank you!!

Re: Help! Construction loan/VA loan questions

LakeLife — Tue, 12 Mar 2019 16:07:21 GMT

I would just make regular payments on the installment (personal) loan and throw as much money as possible at the credit cards especially if they are of a higher interest rate.

Re: Help! Construction loan/VA loan questions

ShanetheMortgageMan — Tue, 12 Mar 2019 18:05:41 GMT

My advice is to contact the loan officer for the construction loan and ask exactly what needs to happen for you to get approved for the mortgage. "Paying off credit card debt" is a pretty generic instruction, because you did that, but you also used a personal loan to help you do it... so what does the loan officer say about the payment on the personal loan now? Are you able to qualify for the construction loan with the personal loan payment included in your debt ratio? Or does the construction loan require you eliminate that payment for your debt ratio to be low enough to qualify? These are all questions that can only be answered by the loan officer doing the construction loan.

If you aren't able to qualify with the personal loan payment in the debt ratio, then you'll need to pay off the personal loan and so (A) would be the correct route. If you don't need to pay it off to qualify, and you'll have extra money to throw at your debts, then I'd suggest you apply extra payments towards your debt with the highest interest rate.

There are VA construction-to-perm loan programs that will include an interest reserve which will be used to make interest only payments while the home is being built. These are more expensive VA loans than if purchasing a home or doing a regular refinance with a VA mortgage. However, it sounds like you are doing two closings with your current situation anyway (qualifying for the construction loan + refinancing afterwards into VA), so may be worth it to explore the VA construction-to-perm option and do a VA IRRRL (an easier VA refinance that doesn't require an appraisal and has reduced VA funding fees) after the home is completed to get into the lower rate VA mortgages that are more common.

Re: Help! Construction loan/VA loan questions

armywifelong03 — Tue, 12 Mar 2019 20:39:27 GMT

Thank you. We don’t need it for DTI. Our DTI, with current mortgage and proposed mortgage was only 40%. They just felt like we had too many cards with balances and would struggle to keep up with those and everything else. And, I miscalculated. We have $8,500 residual income after all necessities each month. I am thinking we will go with A and just go with it. Our scores are good and everything else.