Getting a loan for your project

The first question I am being asked lately is if you can get a loan to build a new home. The answer is Yes! I spoke with some of our lenders today to check their pulse. Each one has slightly different programs, but they still have money to lend. They were not involved in the subprime market, so they are not experiencing the difficulties that you are reading about in the press. The press makes everything sound so bad that people are afraid to do anything. I wanted to provide a more realistic assessment of the situation.

Basically, loans are available with a 90% loan to cost ratio. That means that as long as you have 10% of the total costs to put into the project, then you are OK. Also, a decent credit score is needed. One lender will work with a credit score at 640 or above. You may be able to get a preferred rate with a credit score above 700. So a decent credit score and some cash will be needed to get the loan. Both 2 time and 1 time close loans are still available. Rates are higher for non-conforming loans such as jumbo loans, but they are still out there. For projects above $1 million, a 20% cash injection may be required.

Mortgage Insurance is more difficult to obtain, and will probably not be available for investment properties. So you may need to have at least 20% cash for an investment property. Mortage Insurance is still available for second homes, and you can find financing for 90%.

A year ago projects could also be done based on a 90% loan to value ratio. That would be for a loan where the appraised value is above the costs, providing at least 10% equity in the project. This type of loan is much more difficult to find now. If you can find one, you will probably be required to have the 10% in cash reserves, and a very strong balance sheet.

Who knows what the proposed bail out package will do for rates, so I am not going to even discuss that here. However, it may at least stabilize the financial markets, providing a calmer day to day setting for interest rates and loan programs.

I will be glad to share our lender list and to help you get your new home going. Feel free to e-mail me for more information.