How much will Mortgage Score drop from paying off Mortgage?

[Anonymous]

Hello! We are getting ready to pull the trigger on a construction loan, and I have a question about timing.

I’ve been working hard to raise my mortgage score, and with the AZEO method I should have my mid mortgage score at 700 when I pay down my last card in February.

The question I have is timing: we plan to list our current home in early April, and hopefully close a sale in June timeframe. If we wait to apply for the construction loan until after our current mortgage is paid off, I’m fearful of the drop to my score. I know when a mortgage is paid off, scores drop.

Is there anyway to anticipate how much the score would drop?

Alternatively, we can apply for the construction loan now, before our house sells. I *think* the DTI works out now with the current debt load (fingers crossed. However, it may not and so I’m prepared to sell house, and then apply for the construction loan.

Does anyone know how to estimate drop in score from mortgage being paid off? Happy to supply report details if it helps.

Another thing I’m wondering is if a bank would make a loan decision now, based on 700 score, but conditional on the sale?

Many thanks in advance.

[Revelate]

There is some bad data around installment loan scoring and installment loans; might be somewhat scorecard dependent.  I only got movement on EX FICO 2 for installment loans movement when I was in a derogatory scorecard and my EQ FICO 5 and TU FICO 4 didn't move at all.

That said, I'm leery of doing anything credit wise if you have a score that is over the hump of what you need.

[KELSTAR]

The house should be listed for sale first. 

Have enough in reserves to cover both mortgages for at least 3 months.

Apply now for construction loan if your scores are maximized. Even if it takes 6 months to build the house, your application now is all that matters. 

If you meet desktop underwriter and institution underlays, you are gold. It should not be that complicated if the lender does construction loans.

Peace!