Construction Loan to Permanent Financing..need advice PLEASE

[Anonymous]

Hi.

My husband and I have closed on a construction loan.  We own the land and did all the prep work out of pocket.  Now, the house is 85% complete and our credit score (because of credit cards) has been increasing and decreasing based on usage for the past year or so.  We recently had a 31 day late payment on a car loan that was because of my poor organization.

I am very concerned that this late payment will affect us actually getting into the house.  How is that viewed when we get our mortgage?  I guess I am asking if you are guaranteed to get permanent financing when you close on the construction loan?  Would a huge "boo boo" to credit prevent it or is a 31 day late payment a huge mess up?

If anyone knows anything about this please please give me some advice.  I am so nervous about this.  My loan officer is out today and this house is on family property given to me and I would hate for something to happen and we not be able to "purchase" the house.

Michelle

[ShanetheMortgageMan]

Hi Michelle.  If you take out what's called a construction-to-perm loan, it rolls over to the permanent financing portion when the home is complete.  But if you just take out a construction loan, and are required to refinance out of it once the home is complete, you must then re-qualify for a new mortgage based on what your situation is at the time you qualify for the new refinance mortgage, so your situation at the time you obtained the construction loan doesn't determine if you are approved or not.  A recent 30 day late payment could negative impact your refinance options, but if it's an isolated late payment you otherwise qualify, you should still be able to refinance out of the construction loan and into a permanent mortgage.

[Anonymous]

Ok, well I did find out just as you've stated.  We do have to qualify for financing now because we do not have Construction to perm financing.  Now, with that said, my husbands score ranges from 498-535 and my equifax (don't know the others right now) is 555.  We make well enough to pay the loan but this is my question.

When you own the land, do all improvements, then get a loan to build it plus appraisal will come in at 30k more than the loan..does that help with approval?  We owned the lot already and it appraised at 15k to 20k before we built.  After construction the house will appraise at 230k and we are borrowing 185k.  What do you think of this in terms of financing?  Will that appraisal vs loan amount be like a down payment?  Would our development costs be like a down payment?

Thanks for your advice,

Michelle

[ShanetheMortgageMan]

If you just refinance what's owed, and don't take any cash out, then the current appraised value can be used to determine your financing options.  However I didn't realize the scores were that low, if I was you I'd send a goodwill letter in to the company you had the late payment with and see if they'd remove it.  If they do, that should not only increase the scores but help you qualify for FHA.  Mortgage options are more limited these days, without 20% equity (gotta figure in the new loan amount would have closing costs) FHA is going to be your best option.  FHA is looking for clean credit for 12 months, I was going to say with an automated underwriting approval it can be OK with negatives in the last 12 months, but with low 500 scores the odds aren't good for an automated underwriting approval.  Priority #1 would be to get that late removed.