conventional & fha ?

[Anonymous]

I think I am just looking for some guidance...... 

Our plan has been to build a home in February 2009.  We are waiting until then for a few reasons. 

Our credit scores will be higher.  Right now they are

656  654  589

616  639  615  -  this one should take a nice jump because soon there will be a charged off cc that is still counted in my ut that is coming off.

We own a peice of property that we will be building on.   Right now we owe about $9000 and this will be paid off by December.   At last appraisal it was $58000.00.

Our home will cost approx. $190000.00

Our DTI is 31%

By February our reserves will probably be about $4000.00

Is the difference in FHA & Conventional credit scores and pmi??  We really want to avoid PMI if possible.    But I had read another post where unless you have great scores even a conventional loan has PMI.  Would our property value help with this at all??

I saw where mortgage rates were beginning to rise and I am wondering if we are making a mistake by waiting.   (I'm probably just getting impatient)

If anyone can offer some good reading info concerning mortgages and what you need to know would be great.  Something simple to understand

Thanks for any information.

[ShanetheMortgageMan]

The only construction options are with conventional financing (I've heard USDA has a construction program but don't know anything about it, you'd have to call USDA directly on that since it's a "Direct" program).  Usually the rate is variable during the construction period, and then it converts over to permanent financing when the home is complete.  This is called a "construction-to-perm" loan or a "one time close" loan, or CTP or OTC for short.  The rate it converts to at the end can often be higher than if you were just to refinance into a normal permanent mortgage or used a permanent mortgage to buy a home at completion.

General mortgage information is just that, general, it's not tailor made for your specific situation.  If you want to just read up on the general mortgage & homebuying process then "Mortgages for Dummies" is a good start - however it's not going to cover current requirements/qualifications for mortgages and definitely would not go into detail on the process on building a home.  Those are definitely going to be specific to your situation.

Mortgage programs that are used to finance construction of the home are referred to as Construction Loans.  It's where you get money to pay for the boards, nails, labor, etc. needed to construct a home.  Some people confuse buying a new home upon completion as needing a "loan to build a home", because technically they are buying a home from the builder when it's complete, not getting a loan to pay for construction.  I know that's not your situation, but I was just putting that out there for other people who might be reading this thread.

Construction loans are often harder to qualify for than getting a mortgage to buy a home upon completion.  There are higher FICO score requirements, and if needed, PMI has more strict requirements as well.  Construction lenders will require you make at least a 5% investment into the transaction from your own funds, this could be from money you bring in at closing, or in your situation, from the equity in the land you own.

Another important item you'll need to know to get approved is what the homes value would be "as completed".  This is important because the lender uses this as the qualifying value when determining if you need PMI, for interest rates, etc.  You can get an estimate on this number by researching what recently closed homes to the one you are building have sold for lately... but eventually it's the appraiser that makes the value determination which lenders will use.  When qualifying for a construction loan it's best to talk to the lender who you are going to get the construction loan from since not all of them have the same requirements, work the same way with disbursements/draws during the construction process, etc.