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Architect/O-B needs Financing


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Jason's Forum Posts: 5
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By Jason in Phoenix, AZ on 2/20/2007


I need financing advice. I am an architect in Phoenix, AZ with 10 years experience, including construction administration. A year ago my wife and I purchased a 1+ acre piece of land north of Phoenix (Desert Hills). We put $35K down and financed the remaining $128K. I have complete plans for a home I designed with building permits in hand from Maricopa County. I have bid the project with reliable subs for a total construction cost of $293K. Total project cost will be $421K (including lot payoff). The house is a net zero energy house, utilizing energy-efficient design and materials, as well as PV solar panels.

Here is my dilemma.

My current FICO score is 640 and wife is at 575 due to medical collection which will be cleared by the end of the month. I have already gone through the application process with two lenders, being assured that all the numbers look like they are within acceptable limits, only to waste 4-6 weeks and find out we were not approved.

I have been declined by Washington Federal Savings, a lender I enjoyed doing business with as they are a small-type operation with personal interactions, but I did not qualify after all. I was also declined by Chase Bank, which was processed through a mortgage broker.

Of course, I need a lender to allow me to act as the owner-builder. I would prefer an interest reserve during construction (9 months) but can manage interest payments if necessary. I would also prefer construction to permanent financing (i.e. one-time close). And finally would prefer no additional money down; the house was just appraised at $550K which provides a Loan to Value ratio of 76% (not including loan fees). This scenario would put our debt to income ratio at 48%.

One of the reasons we are in such a fix is that before purchasing the land, we consulted with IndyMac for advice on lending. They advised that we close all revolving credit accounts (while carrying balances) and payoff all installment loans (car payments) with some additional cash we had saved. We found a very good buy on land, but IndyMac was unable to close in the 10 days required by the seller, so we borrowed for the land only with our local bank. Then we both watched our FICOs plummet from high/mid 700’s to low 600’s. I’m not blaming everything on IndyMac’s advice, but we now know what we did was the OPPOSITE of what we should have. Plus an unknown medical bill went into collections just as we started the construction loan process again. We’ve been spending the last half of the year trying to repair our credit AND get financing to build our dream home. We are so close, but cannot find any solutions. Any help would be appreciated.

The worst part is that we would still like to finance through IndyMac, but we no longer meet their requirements for lending. They allow scores as low as 620, but BOTH applicants must be at least 620, and even then, the max loan amount is $400K. I can sacrifice some key features of the house to get the budget that low, but with added loan fees, I’ll never get it under their mark.

Any brokers, or lenders out there with advice is much appreciated. I am considering Hard Money (private) loans, but don’t even know where to look for these.


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By P in North, FL on 2/20/2007


Here is a link to lenders that offer O-B financing:

ownerbuilderbook.com/forum/List-of-Construction-Loans-for-OwnerBuilders-t1992.aspx

I am angry on your behalf. The person at IndyMac who advised you to take the course of action described above, should be fed rancid milk.

If your income would allow it, you may want to consider applying for the loan without using your wife's income. If that is possible, only your scores would be taken into account.


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By Michael Penn in Dripping Springs, TX on 2/20/2007


I certainly sympathize with your dilemma. You got what sounded like reasonable advice on dealing with your credit, and followed it, only to find out that it was pretty much opposite of what you should have done. Best I can tell, you don't want to ever cancel or close credit lines. Pay 'em off, but leave the accounts open. And for a mortgage ap in particular, hold as much cash as practical.

The inner workings of the credit bureaus and the FICO scoring can be counterintuitive, and just plain crazy.

I've pulled mine and my wife's scores about a half-dozen times each over the last few years, and dealt with a couple credit slip-ups. The worst was all about a $9 charge that was 30 days late, which hit my wife's score about 75 points. Which seemed to me a disproportionate response, especially when you extrapolate the difference that could make over a 30-yr. mortgage.

The good news is that filing protests over it seemed to help, and most of the damage was fixed after a few months.

Each time I pulled my FICO scores, it was interesting to read each bureau's explanations of what was hurting my score, and what I could do to improve it. There were always apparent contradictions between the bureaus, and sometimes one line item would contradict another from the same bureau. Maddening. But it's the only game in town, so you gotta try to guess the rules, and play as best you can.

So if you haven't already done every thing you can to file a "protest" with each of the three bureaus (the procedure is a little different at each), I'd sure do that right away.

And I'd also go looking for other lenders. Another broker who deals with lots of lenders. Some more local lenders. And some national lenders. You only need to find one to do your deal.

I'd almost guarantee somebody will do the deal, at some rate and points. You just gotta find one that's not too extremely subprime, with outrageous rates and costs.

Good luck.


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By Jason in Phoenix, AZ on 2/21/2007


I've been in contact with almost every lender listed in the financing thread. I strike out based on scores, D/I, O-B or LTV. It's just a bad combination.

Right now I am in the process of applying through IndyMac (Can you believe it?) with my income alone (Stated as opposed to full docs) and they're telling me I'm within their guidelines. I've heard this too many times before.

I have learned so much about scores and the credit industry in the last 6 months. I have basically come to the conclusion that the entire borrowing process is designed to favor the lending agencies, NOT the consumer. In some cases being a responsible borrower is punished while living in constant recirculating debt is rewarded. The goal I'm working towards is to have only a mortgage payment for tax purposes and no other revolving or installment credit, but to get there I have to convince a lender to give me this construction loan. I don’t have a good source for sub-prime lenders that allow Owner-Builders. Any lenders/brokers out there have any input? All my numbers are listed in my first post. Am I just way off, or have I just not found the right lender yet?

I am also frustrated with the appraisers as well. I don’t think they fully understand how to apply a value to an unbuilt home. They’re not contractors, so they don’t know how much it actually costs to build a home; they’re not Realtors so they don’t know (other than referring to the MLS) what a home could actually sell for. All they did for my house was look at comps and apply the math. Look at some of my study models for my house/guest shelter and tell me how there is anything comparable!

youtube.com1

youtube.com2

youtube.com3

It’s not a ranch, territorial, adobe, Tudor, cabin or Craftsman-style home, so why do they insist on comparing to those? Here’s the closest similar home to my style, about a mile away towards what is considered the lower-priced section of North Phoenix:

azarchitecture.com/property

Look at the asking price! Although I’m no Bruder (yet), the build size is very similar, program similar, materials almost identical, the house is 18 years old, but sits on 9 acres. And I’m barely making the 80% LTV mark with a $423K total budget.


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By Dale in Richland, AZ on 2/22/2007


You should go back to IndyMac and demand to see someone of importance and explain what you did based on THEIR advice. Then tell them to give you a loan.

I agree with you, the FICO scores are better for someone living at the edge of financial hell but paying their bills than someone with no debts. Another thing that hurts is every time someone checks your FICO score you get dinged a few points.

M&I is pretty good here in AZ for O-B, not sure about their score ratings.

I know some hard money people here in Tucson, if you PM I'll pass the info along. It's not cheap but it would be a bridge to a mortgage.

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By Michele in Stafford, VA on 2/23/2007


Hi Jason,

The advice already given to you by the others here is good. I also wanted to add that I feel your pain. I went through a divorce four years ago and got saddled with all the bills. At that time I had not checked my credit report for years (no need to) and found a lien on my report caused by my ex-husband. Plus, I ended up having high credit card balances because I was juggling to make it on one income with no warning or time to plan. So I did lots of creative financing, floating things on credit, taking advantage of low interest offerings by transferring money to different cards, etc. Once I stabilized, I paid them all off. I got the lien removed, because it was not my issue, it was my ex's. Anyway, like you, I learned so much about how bizarre the credit reporting and scoring is. It is a cat and mouse game of the worst sort.

I too have gotten every story in the book on how you should handle cards, to close or not to close, etc. I was told by mortgage lenders that if you have a good credit score, they don't care so much about how many cards you have and are more lenient on Debt to Income. However, if you have a lower score, some will advise you to close most of your cards even if there is no balance. My understanding is that the lenders look at that as an easy way for you to get in hot water if you have a lot of credit available to you, and if you haven't managed it well in the past, they are not so trusting that you won't run them up right away and sink yourself.  And it almost never seems to matter to anyone that there may have been extenuating circumstances beyond your control. They go by the numbers!

The appraisal on paper is giving many of us fits. I hope there will be a way that us enlightened owner-builders can effect major change in the way lenders view us. It seems that if you are not building cookie cutter, they all run and scream! Not everyone wants to live on a street of homes crammed together (no matter how regal) and pay a homeowners fee to be nitpicked to death over what type of color you paint your front door, or how you do your landscaping.

I feel like some kind of rebel, because I am going against the norm. Most of us end up building custom high-end homes. I say high-end, because however modest in square footage we may build, we are putting in a lot more craftsmanship and nicer materials, because we can! We're saving on other things to be able to do so! It's frustrating with the appraisals. I have heard though that many times once its built and the agent can walk through and really understand the home, it will appraise higher. Let's keep our fingers crossed!

Good luck!


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By Jenee in Katy, TX on 2/28/2007


Jason,

Thank you so much for your post! I will keep my fingers crossed for you guys to find financing. Please keep updating your post w/your experience w/IndyMac. My husband and I have low credit scores due to him being unemployed after the IT bubble burst (read stay at home mom ends up going back to work to cover bills with a salary one third of what the main breadwinner used to make). Anyway we are rebuilding our credit and are confident that in two years we will be ready to buy land and start building. Right now we are in the planning phase. So again please keep us updated on your financing because we may need to try some of the same lenders as you...


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