New Construction Loan

[Anonymous]

Is there a difference b/w a new construction loan vs a resale loan? If so, how does it work? I got pre-approved for a home loan and home won't be ready until October. If I got pre-approved now, will they recheck my scores again right before closing?

[Anonymous]

yes, typically they will.  If you were pre-approved through the builder, your purchase contract probably says that you need to secure financing when 30 to close comes up.  You should look at it closely.  Most pre-approvals, even with a resale home, only last 4 or 6 months, then you need to get a new one.  Your preapproval may state that it has an expiration date.

What were your scores to get the pre-approval?  I am thinking of doing this, as it would buy me about 6 months to further increase my scores for when it comes time to secure financing.  At that time, I should be in the next score bracket for rates.  Right now, I am subprime.  Is that where you are?  I am just curious if pre-construction preapprovals have more lenient score requirements since there is more time between closing to get your score up.

thanks.

[Tuscani]

And don't apply for any new credit until you close!

[Anonymous]

My middle score was 605. We just started the process with the builders lender and I'm curious to see what they have to say. But the pre-approval is actually someone else. I was excited to hear that we qualified for a 95% loan with 5% down and fixed 30 yr @ 6.375%. I'm pretty sure by the time we close my score will go up even higher (my score went up 20 points in less than 2 months).

[Tuscani]

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pinkville wrote:
My middle score was 605. We just started the process with the builders lender and I'm curious to see what they have to say. But the pre-approval is actually someone else. I was excited to hear that we qualified for a 95% loan with 5% down and fixed 30 yr @ 6.375%. I'm pretty sure by the time we close my score will go up even higher (my score went up 20 points in less than 2 months).

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nice! That's a great rate for your score!

[Anonymous]

Yeah. But I have to say that's with a 1% origination fee. The original rate was at 6.875.

[Anonymous]

The same thing happened to me. About 6 months ago, I wanted to build a new house. I was pre-approved for a 95% loan at a rate of 6.875%. My middle score was 604 at the time. My new home will be ready at the end of this month. My lender re-ran my credit report on 4/19 and my middle score went up to 635. I have now been approved for 100% financing and a rate of 6.25%. Getting past 620 is key. I plan to refinaince once my score researches 680 or so.

CCM

[Anonymous]

Thanks for the great info.  My middle score is 590 right now, and I anticipate it going up, hopefully to 620 by the time I need to close.  I went for a pre-approval meeting with the Builders mortgage company a couple of days ago, and I found out a lot of interesting things.  For one, they will try to get me pre-approved for an FHA loan because scores are not factored in.  The application is manually reviewed.  There is not really an exact criteria, but unpaid collections typically need to be paid.  I have less than 5K to pay from 2001-03...they may not make me pay them due to the fact that they are so old, but I am waiting to find that out.  They will preapprove based on your ability to get these paid off before close.  The pre-approval for the FHA loan is for 6.5% and requires 3% down.  One of the nice things about FHA is that the mortgage insurance is about half the cost every month.  However, I learned that with FHA, the requirement for PMI is that you have to pay it until the LOAN (not loan to value) is paid down 22%, and for a minimum of 5 years, regardless of loan % amount.  So, if you overpay your mortgage a little every month, and get it down to 78% within 4 years, you are still required to pay he PMI.  Obviously, you could refinance.  All this said, getting pre-approved for building is easier with FHA.  Your CB will be run again about 30 days from close, and your CB will be reevaluated for other loan programs, which is what I plan to do.

I have chosen to go with the builders mortgage company because it qualifies me for about 30K in upgrades at no cost...instant equity!  However, my contract states that if they cannot get me approved, then I still get the upgrades if I can get approved elsewhere.  This is a good approach with the upgrades because it wil put my loan at about 85% if value straight out of the gate.  This wont matter up front, but I plan to overpay my mortgage for the first year to get the LTV down to 80% to drop the PMI before my property taxes start in year two.

Just a little bit of info from my experience with this for anyone who is looking into trying this out.

I have a question for those that have been down this road.  In order to finalize the submission of my application, I need to write a letter explaining my segment of bad credit history.  Has anyone else needed to do this, and if successful, what did you put in the letter.  Any examples would be great.

thanks in advance for any help!

[MidnightVoice]

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ekuzniar wrote:

I have a question for those that have been down this road.  In order to finalize the submission of my application, I need to write a letter explaining my segment of bad credit history.  Has anyone else needed to do this, and if successful, what did you put in the letter.  Any examples would be great.

thanks in advance for any help!

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I had to do that many years ago.  I had a couple of late payments from a period of sickness and half pay.  I explained that all away, and I was current on everything else, with no outstanding debts, there was no problem.

It was when I had to pay for running the house that the manure really hit the oscillating unit and I got into financial problems and it has taken me years to get out from under.