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By Sara in Leavenworth, WA on 11/27/2000


My husband and I are in the beginning stages of planning to build our own home. We bought a piece of land in May and just moved onto our land and our living in a 35-foot fifth wheel we bought while my husband was still in graduate school. We are have lived in it for two years, and will live in it until we complete our home. We have our power, septic, well, phone all hooked up, and my husband just finished a snow shed for our fifth wheel. (We live in Washington and get a large load of snow each winter.) Our plans include building as we have the money. My salary will be financing this project.

My question is... are there any lending institutions that give construction loans to finish up a project? We would like to do a lot of the work ourselves, but want to take more than the year that bank requires for the house to built in if one is using a construction loan. It would be our hope to get a loan to complete the last portion of the building project. Any thoughts or suggestions would be helpful.

Thanks,

Sara

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By TJ in Fresno, CA on 12/24/2001


Has anyone used or investigated companies such as Instant Home Equity or COBS? These firms provide 100% construction/permanent financing, but you have to purchase most of your material from them in a sort of a package deal. Their programs sound compelling, almost too good to be true, especially after trying to obtain a construction loan without a GC license.
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By Barret in Charlotte, NC on 2/13/2002


Has anyone heard of ownerbuilderloan.com? Just found them on the Web. Points are a little high, but they really seem to cater to the owner-builder. I am currently working on our construction loan through a broker who is using Transland Financial Services. Anyone used them? Thanks to all who respond...
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By Shawna in Harrisburg, PA on 2/14/2002


I have been in contact with both COBS and Instant Home Equity and COBS seems to be the better of the two. Instant Home Equity have home plans they would allow you to pick from. COBS will allow you to build more of a custom home. COBS likes you buy a lot of your materials at Home Depot, but you're not committed to buying everything from them. It seems like a great program.
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By TJ in Fresno, CA on 2/21/2002


I actually went pretty far through the COBS application and program. It would be a decent program for someone that had absolutely no experience in building or project management. They provide lots of material requirements, budgeting, scheduling and so on. For a price of course; their fee was going to be $13K, which would be reasonable, I thought, for all the work they would be doing. I just decided that I could do everything they proposed just as well and would save the $13K.
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By Deepak on 1/9/2003


Yes, for the size house I am building (about 4,200 sq. ft.) COBS quoted me $13.5K. I ended up using BuildMax and paid $6,500. I only did it because I didn't want to put any cash in, otherwise there are many lenders that will let you do owner-builder with as little as 5% down, and you can save the $6,500.
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By Ajay on 3/15/2003


Deepak:

Can you please recommend any institutions in Texas that will fund owner-builder construction with 5% down?

Thanks,

Ajay
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By Patti in Lindale, TX on 3/25/2003


I own land in Texas and am living on it, and am having a very hard time getting financing since it is my "homestead." Can anyone give me the name of a lender that will do this - not BuildMax or COBS or anyone who will charge the fees to do what I know how to do already. I just need the loan, not the hand-holding. My neighbor is GC and will hold my hand for free (good looking too, don't tell my husband).

Thanks.
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By David in Dallas, TX on 1/27/2004


My wife and I are beginning the process of owner-build. We live in Texas and understand that in Texas, you cannot be the GC of your own house. People do however act as GC for you even though they may not ever see the construction site. This seems to me to be less than advantageous because of the liabilities for that person, especially if the bank wants more verification of their involvement. How can we owner-build in Texas? I do need a construction loan and would like to use a reputable lender.

Regards,

David

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By Kenneth in Lees Summit, MO on 2/10/2004


Why not get a GC license? In my locale, it is very easy. A GC license also establishes you as much more credible when trying to negotiate prices with suppliers.
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By Tina in Willoughby, OH on 2/27/2004


In regards to financing I'm debating on doing one of these build your own home programs, but it seems like the fees are high. Does this include the cost of rolling the loan into a mortgage in the end?

I've also debated on borrowing the money to build from my family, and then as soon as the house is built pulling a mortgage then. Can this be done? This way no bank has any say so on how my house gets built. And I was thinking that if I built on my own I could pull a home equity loan instead of a mortgage since the home will already be in my name. and then it doesn't matter if the inside is completely finished because no one comes inside. I'm not sure what's the best way to go.


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By Jon in Olathe, KS on 6/1/2005


Ken -

is the contracting license you rec'd. a class A?

What are the requirements you had to satisfy?

The tests here only cost a couple hundred dollars and the license fee is $200. I assume I'd save more than that by having a GC license, in material costs alone.

Besides, the test can't be too difficult; if the guy that built my house five years ago can pass, I KNOW I could.

-Jon


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By Kenneth in Lees Summit, MO on 6/2/2005


You're on the wrong side of the state line. It wasn't anything that difficult. Basically I showed up to city hall, applied, wrote a check, and voila, I am a licensed GC. The ease it took to become a licensed GC over here is amazingly scary, just further serving my bias that I would never own another spec home.
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By Paula in Fredericksburg, VA on 6/2/2005


Fortunately or unfortunately, depending on one's perspective, becoming a licensed GC is darned difficult in VA. Not only do you have to pass the GC exam (which sounds quite easy) but you must prove five years of full-time experience in the field. From my perspective at the moment, it stinks! LOL


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By Wayne in Fresno, CA on 6/12/2005


TJ, I'm going through IndyMac, and if you're interested I can give you the number of our guy. We are going to close the loan and start building within the next two weeks. Everything with the loan process has gone quite smoothly, though a little slower than we would have liked. All you need is a GC to sign on as your supervisor, just someone willing to take responsibility to answer your questions and help you on an as-needed basis.

These GCs are generally much cheaper than COBS or BuildMax would be. I know this because I'm a GC and I've looked into BuildMax and COBS on the Web. We're building in Madera Ranchos - where are you?
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By Baine on 7/12/2005


No lender will loan on a non-finished home unless it is a hard money loan and even then they will require an appraisal and you will be squashed. Lenders do not like to loan on half-finished properties, I have seen deal after deal die on the vine because people did it this way. If you need more money from a bank cause you run over, you're dead. Don't do it unless you have plenty of overrun funds and awesome cost estimates up front, and by awesome I mean detailed down to every nail.

However, if you do, doing it all with your own cash is FAR superior. No interest cost, no financing costs, etc., you will save HUGE. And then when you pull a HELOC when the house is finished to pay back your friends, the rates will be lower, payments lower, financing costs almost nil to nil as a lot of HELOC companies do no-closing-cost HELOCs to 75% LTV. This is a dream come true, and most people don't do it cause they don't have the hundreds of thousands in cash sitting around.

But yes it's possible, anything is, especially when you have the cash, because he who has the gold, makes the rules. I'm outtie.

Baine


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By Cindy on 7/14/2005


You CAN obtain a construction-perm loan (in some states, no) even if you have broken ground. You would need to:

  1. Have title company supply an 'early-start letter'.
  2. Supply invoices and proof of payment on all materials and subs.
  3. Supply mechanic's lien releases signed by all subs.

The lender will order an appraisal subject to completion, to establish value. All unpaid materials/subs would be satisfied at closing of new construction loan.


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By Baine on 7/14/2005


Hey Cindy,

What lenders have you found who will entertain construction after breaking ground and starting a build? Many lenders walk after this point and want nothing to do with the deal. I have even seen one subdivision of 9 houses, all 8 sold for $1MM plus and the last one was 90% complete. The guy ran out of money to finish it (how after he sold the other 8 for $8 million we didn't get into) and NO ONE could find him financing to complete it. He ended up after a year trying to find financing just selling for cost to someone who had the cash to complete it. It is uncanny how lenders will not lend on partially finished projects, even if there are EXACT models right beside it. This guy talked to maybe 50-60 lenders and found no one.

Baine


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By Cindy on 7/14/2005


TWO. Both that I work with via BuildMax. (I am a consultant for same): IndyMac and MidCountry Bank. The exception is the state of Texas.

As a mortgage banker who specializes in construction-perm loans, I do have to admit that these two lenders are the exception to the rule.


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By Baine on 7/14/2005


Cindy, can you post some minimum FICO score to LTV guidelines for construction loans and from their respective lenders?

For example:

IndyMac on their website shows they will lend 80% LTV (of construction cost, not final appraisal) to an O-B at a minimum of 680 FICO score, with full income documentation. They do not show anything available for lower credit scores than 680.

I have seen local banks do 80% financing on construction cost, not final appraisal, for borrowers with scores as low as 600 with stated income documentation.

I have two hard money lenders who will do 65% LTV of construction cost, not final appraisal, with no income docs and no credit check.

I think what people need to know is what guidelines are available, just like a lender rate sheet/LTV/credit score matrix.

We need a chart of:

Minimum FICO score

Max LTV (of construction cost or final appraisal value)

Income documentation type required

1. Full doc

2. True Stated Income

3. No doc

4. Alt docs/full doc

Can you help with this?

Thanks,

Baine


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By Mary in OH on 7/15/2005


I would love to see this too!!!

Mary


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By Netie in Salt Lake City, UT on 7/17/2005


Baine,

Your dude with the $1M+ house... You said it ALL with "how after he sold the other 8 for 8 million we didn't get into" I'm sorry, but all I can think of is, duh... of course the dimwit can't get financing - he  (a businessman G.C.) SIPHONED off all the money on his other projects. 

Even if he completed the other eight - would you lend him your personal savings for a short spell? I wouldn't. 

Back in the 90's when I was in Washington - InterWest Bank loaned on land plus foundations with No Problem. It was a common practice. Although, I don't know if it's changed.


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By Baine on 7/17/2005


Since that time, I have developed a list of lenders who will lend on land+foundation, so there ARE lenders who will do it. You make a very good point here and I'm glad you made it; good lesson for all. These types of lenders are not usually in brokers' lists, so that is why he had such a problem. Remember however, he went to several local banks and they turned him down.

Also, he didn't necessarily siphon the money off the projects in a way harmful or risky to the lenders, although him being turned down by the local banks does strongly implicate this. He might have simply done the houses one by one, living on profits at end of each sale, etc. (Maybe he lost it all on a Heartbreak roll at the craps table in Vegas. He was in Arizona, so not too far away) :) Strange how he didn't have enough to do it since he made so much $.

Usually lenders will lend on land+ at 50% LTV with half-decent 600+ credit and full docs.

However, if the land has problems, e.g. a half-built non-salable house on it, many lenders will see this as unmarketable or less desirable. Some hard money lenders would take this on, charge 12.5% and 5 points, but I have only found two so far who will.

Baine


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By Cindy on 7/18/2005


Hello,

Here is a quick reply to your request for a construction to perm matrix:

Via the BuildMax owner-builder lenders, we are able to give 100% LTC financing, with max 90% LTV. Minimum credit score for conventional financing is 620. We can obtain a 'Level 1' approval with credit scores under this, down to a 590. This is a FULL DOC scenario.

For stated income, they need a 660 credit score, and need 5% cash/equity in project. Max 95% LTC and LTV.

Note that all loan applications are run through desktop underwriter, which makes lending decisions based on credit scores, credit condition, listed assets and income. Following, a 620 score does not guarantee an 'Approved Eligible'.


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By P in North, FL on 7/18/2005


bismarkmortgage.com

I hear from brokers they are a good place to go and easy to deal with. Very flexible guidelines.


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By Paula in Fredericksburg, VA on 7/18/2005


This is a very helpful post.  However, what does "FULL DOC" and "stated income" mean?

Thanks.


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By Cindy on 7/19/2005


Hello,

In regards to "full documentation" and "stated income" lending:

Full documentation requires full disclosure/review of all income and asset documents: W-2's, paystubs, bank statements, and if self-employed, two years full tax returns.

Stated documentation does not require any income documents, only proof that you are employed, and if self-employed, proof that you have been two years in same line of business. This of course is ideal for those self-employed individuals who 'write off' many expenses to offset income on their returns.


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By Charles in Brentwood, MO on 7/27/2005


I was under the impression that Missouri did not license general contractors. Are you referring to a local licensing body? I am new to O-B, please forgive my ignorance.


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By Kenneth in Lees Summit, MO on 7/27/2005


The state does not license GCs, but many municipalities within the state do. You are required to have a license to operate a business within the municipality.

In Lees Summit, you are allowed to work on your own house. However, they will only issue a building permit to a GC, not to an individual. Hence, you must become a GC to build your own house. It is more of a revenue enhancement than anything else, as the only real requirement to becoming a GC is that I pay for the license. I became licensed and pulled my permit the very same day. Now that I have the shingle, I might as well hang it out when dealing with suppliers, as it adds credibility (although now that I know what it takes to get one, just because someone has a license doesn't earn them any credibility in my book).


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By Charles in Brentwood, MO on 7/27/2005


I see. Thanks for explaining, that is interesting. My municipality, Brentwood, (just outside St. Louis city limits) does not require any license for owner-builders. 

Did you find that you could in fact get better deals from suppliers by being a G.C. and/or portraying yourself as a business, as opposed to an O-B? 


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By Baine on 7/27/2005


Actually you do not have to become a GC to build your own house :) You can simply hire a GC to "oversee" the project and there you go, you have a GC license. The GC can do all the things to be done that are needed to be done by a GC. This is a common practice and is getting more common every day. GC's can make more money with less time this way, by you paying them a consulting fee. You can give them everything, plans, estimates, bids, the whole nine, hire them as a consultant, for $1.50 to $2.50 per square foot built.

For 3,000 sq. foot built you pay $4,500-$7,500 for this. This is great, as you can have a GC come to the site once a week and survey everything and where the entire project is along the way and help you. I am doing my projects this way, it makes them virtually idiot-proof. I would also say this is a must for noobs. This small fee is hugely worth it. You can draw up a contract, and many times GC's will have contracts for this. I would recommend using one who does already have written contracts for project consulting like this.

This also helps you with problems with subs as you can bring in the GC to deal with it and he has more knowledge how to deal with the situation. Any problems or questions, you have someone right there at your beck and call to answer the question. Also they have all the connections for subs, and supplies, and can usually get discounts at local builders exchanges and places like Home Depot by having a commercial account, etc. It can work great if you use it right. I learned this from reading as many resources that are "owner-builder" as possible like this one, and am glad I learned this :)

Remember Billy Gates said he didn't know anything about building a company, he just surrounded himself (hired) with the right people in all the different areas he would need, and used their expertise.

We can do the same without paying hundreds of thousands for it :) I'll pay $4,000-$7,500 :)

Baine


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By Jon in Olathe, KS on 7/27/2005


The county, at least mine (Johnson County, Kansas), is the governing body that issues the GC licenses. The cities in the county all follow the same "rules": an owner building can obtain the permit without a licensed GC, plumber, electrician, or HVAC, as long as they sign a waiver stating they will be residing in the house.
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By Baine on 7/27/2005


You will DEFINITELY find better deals if you have a business, present yourself as one, and are a licensed GC, than if you are not. If you at least present yourself as a business, and say that you have GC's on staff (by hiring one as a consultant, that is) have business cards for your business ($35 at Staples) and a polo shirt with your business name on it ($75 for a good one) you will be able to get commercial account discounts at Home Depot and Lowe's etc. Builders exchanges will even tell you up front that they give extra discounts (usually 15%) to GC's etc.

Home Depot gives 10-15%, sometimes they have specials of 10% additional off, 10% for employees, 10% if you give your entire budget to them and their commercial manager prices everything on there for you, trying to earn all your business for the whole project like the appliances and everything, every imaginable part. Use them as one of your bids for supplies, (in some areas Home Depot doesn't do this anymore but in many they do) and always go back to them after you have your other bids, because since they have it all and can do one big package, they will often come back and price your whole package less than you could do it in pieces everywhere else.

If you get a Home Depot card, and buy stuff on it, you can get discounts too, just pay it off right after and no interest paid. This will by far outweigh any fees you'll pay, by thousands even, maybe. Use Home Depot, Lowe's, other big places like this in your area, and the local builders exchange as well, to get your first supplies and bids. It's easy, saves time, and is cheap.

Baine


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By Charles in Brentwood, MO on 7/27/2005


Thanks, Baine. I just happen to be at that stage in my project, so this is very timely advice. I'm picking up the final revision of the drawings today and then taking them to suppliers for help with the specifications and take-offs. I'll be visiting Lowe's, Home Depot, 84 Lumber, and many local yards.

Have you found such suppliers helpful when it comes to locating quality subcontractors?


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By Kenneth in Lees Summit, MO on 7/27/2005


You get better deals by representing yourself as a GC because the real money isn't in selling material for one house, it is in repeat business. It is more difficult for a supplier to cultivate a new customer than it is to service an existing customer, so the supplier representatives will bend over backwards trying to earn a new customer. The conversation goes something like this - "I am XXX with XXX Construction, I am looking for a new supplier for XXX and I got your name from XXX. Here is what I need, will you price it out for me?" To get their foot in the door, you will get a better price. Repeat business when you are not "shopping" them, perhaps the price goes up and they can maintain the customer on service instead, but initially it is about both. 

BTW, I almost always found the local suppliers can easily beat the big box prices (Home Despot, Slowe's) in addition to having superior quality. I shop at HD for the convenience, but the lumber at HD is junk compared to the yard I use, not to mention the yard is cheaper. It is also across town and not open late, so unless I have enough for a delivery I don't use them. Every time I get lumber from HD I am kicking myself how bad it is, and I handpick every piece from HD. I take what comes from the yard.

You also get better deals if you explain to suppliers (mostly finish level stuff here, tile, carpet, etc.) that you are building your own house to use as a demonstration house to support your business. If you are doing custom work, and the suppliers think you will be sending in customers, the suppliers like to see their materials in there. I have found I could even get discounts on HVAC equipment doing this, sometimes fairly significant.


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By Baine on 7/27/2005


Yes, I have found those suppliers helpful in finding quality subs. Home Depot has all kinds of jobs they farm out to local subs and many subs are after that business like any kind of install: cabinets, flooring, carpets, blinds, doors, windows, you name it. And they have to provide good service or Home Depot will axe them, and they can't afford to lose huge accounts like that. I have had nothing but good experience with Home Depot subs and the prices are always very competitive.

The commercial-account guys who deal with the GC's and other subs know so many subs who come to them it can be a good place for connections. However, sometimes they cannot refer, since it can be seen as it's Home Depot having possible liability, but sometimes you'll find people who aren't that stuffy. Ask everywhere you go, until you have five bids for everything, keep asking. Keep a list of the subs you need and give it to one of the guys saying, 'I need subs for these jobs', or better yet, 'I'm accepting bids from these kinds of subs or for these jobs' and if they recommend anyone or can refer anyone, then write down their number, etc. Sometimes you can hit a referring jackpot.

Baine


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By Baine on 7/27/2005


Good info here as well. I recommend getting everything priced at a big box like Home Depot, but they will not always be the cheapest, or best, especially on lumber. Local yards often will smoke everyone else. The further north you go, usually the better prices too (Canadian lumber imports)

After getting priced at the big box, go get five quotes minimum for every job, (read your O-B Book folks) which includes the local yards, etc. Then once you have the good prices, go back to the big box and show them; they will often beat your total price for everything by a good margin. If not, split up a little bit of your business or heck - all of it if you have to - who cares, you will win big this way.

Baine


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By Charles in Brentwood, MO on 7/27/2005


Thanks, Kenneth and Baine. Very helpful advice.

Yes, I've read The Owner-Builder Book and many others from "The Whole Enchilada" book package here. I found them to be extremely relevant and informative. I do plan to get at least five bids for every task. The project is located in a very dense urban area and I have suppliers all around me. Two big boxes and three local yards within a mile of the job site and countless others everywhere I look. BTW, my cousin (a builder in Conn.) tells me the same thing about the quality problems with Home Depot lumber. Sounds like a systemic problem.

It's great that you guys offer your time and advice to newbies like me. I really appreciate it. I'll post my progress as I go, so as to hopefully help others avoid any mistakes I might make.

Do you know if suppliers normally can work with electronic drawings (AutoCAD .dwg files, jpeg images, etc.) or do they usually want printed copies?

Attached is a picture of the job site if you're curious. I'm planning to demo the existing house in late Aug.


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By Paula in Fredericksburg, VA on 8/2/2005


In response to your first post again, what is the difference between credit score and credit condition? I thought that a credit score was basically a reflection of your credit condition. Thanks for your help. It's great to have this kind of info available.


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By Baine on 8/3/2005


Credit!!!

You asked about the difference between credit score and credit condition. Credit scores range from 300-850, but banks don't usually touch you unless you have a 620 or better for mortgages, at higher rates. You usually need to have a 680 or better to get the normal rates and a 720 or better to get the advertised ones. Most wholesale (sub-prime, B credit, or poor credit) lenders only lend down to 600 FICO score. The lowest I have done is a 475, but you will pay 10.75%-12% if your score is that dismal.

Now, lenders do NOT lend JUST based on credit score. There are MANY factors in place. Many lenders WILL NOT lend even if you have an 850 FICO but have three mortgage lates in the last three years or a BK (bankruptcy) in the last 2-5 years. Condition of your credit means how many collections you have, judgments, when they are exactly, the status of those accounts, the amount of your debt payments relative to your income, all kinds of things. Lending is not only based on credit score, and this is why everyone just doesn't go to the Internet for financing. It is much more complex then that, ESPECIALLY when you're doing construction, because it involves more risk and lenders look even more carefully at your credit and ask for much more perfect credit scores and conditions.

Normally for construction financing, you cannot get approved without a 680 FICO and full income documentation, no BK's in the last five years, no more then two mortgage lates in the last two years, no open collections or judgments, and no collections in the last two years. IndyMac has their guidelines on their website.

Over 50% of all loans written in the USA are called subprime, which means a sub-standard borrower or the lower half of borrowers essentially. They are higher risk due to all kinds of factors. Yet when people are asked what their credit is like, over 90% reply, my credit is good. Many people even think they have good credit just because they haven't had a repo man come take their TV yet. I have even seen people say their credit is good, and see their score comes in at 405!! Then they always groan and moan afterwards like someone bamboozled them (typical human behavior ;)

Financing is the most important thing for construction, because of course, without the money, you can't do anything. The plans are almost useless (you DO need the plans to get the financing, though). So work on your credit, it's better for society for us to all have good credit anyway.

Baine


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