So I am fairly new to REI. I own two rental units that have gone smoothly so far but I want to get you loan officers’ opinion on my options for the following:
I want to buy a lot for $205,000
I have approx. $20,000 in cash
I want to build my owner occupied home on this land
I have a 765 mid fico
I might have to go stated depending on the lender ( I make $75k/year, but have worked for three different companies in the past two years working in sales).
The beauty of this deal is a finished home approx 3,000 sq. ft will be worth $700-$800k.
Any thoughts…??? Should I get a construction loan or a lot loan? - building costs here are approx. $100/sq. ft.
Again, I have the two rental units, I live in one side of the units - my total monthly bills (only debt is rentals) = $700/ month. My w2 income is $6,250/ month but again might have to go stated because of the job movement the past two years.
What would you suggest? What rates would I be looking at?, etc.?
Thank you very much in advance for any and all input.
I would suggest a construction loan because your bound to get more financing going that route. What State is this in? Feel free to contact me directly with more info…
This is a definite construction to perm loan, no questions asked. Your FICO will drive this all day long. With that FICO, if you have bank statements and consistent income docs displaying income with no gaps in between those sales jobs, you may not even have to go stated. Even if you do go stated, I got at least 3 lenders that will do a loan like this at conforming rates anyway. Good luck, congratulations on your success, all your future endeavors and God Bless!
You would definetly be better off going with the construction loan. Many lenders will allow you to price the loan based on the appraised value instead of the acquisition cost. If it is going to be OO you would be better served doing a one time close because you will be able to lock in your rate at the time of application if you want. Your rate during construction will be prime plus one which at this point is 9% (prime is 8%+1%), which is pretty standard. The other nice thing is that depending on LTV you can roll in all your closing costs, and have an interest reserve account that will make your payments during construction. It is truly a win-win situation. I can tell you this though with the numbers you presented you will probably have to have a small contingency account in case of any cost over-runs. Based on the numbers you provided 300K for construction and 205K for land gives you a total cost to construct of 505k. With the value coming in at 700K you will have a final LTV of about 72%, and construction lenders typically like to see you at around 80%. With your FICO you will not have to provide any reserves, so it looks like you are in good shape. Your job movement should not be a huge issue as long as you have good reasons for the movement. Even if you go stated you will still have to provide verifications of employment. Hope this helps. Feel free to email me if you have any other questions.
There’s actually a program where you start off the construction with some very low rates down in the 5.5-6.5% range. And on top of that these low payments are rolled into the loan. There’s no need to be paying rates over prime during your construction period. After the construction period you are then rolled into a permanent loan of your choice.
Why pay prime or anything close to it? Prime is going to go up again in late July believe it or not!Oh, and by the way, nor does this deal necessitate a contingency reserve, I have construction lenders in my back pocket that will do it with out the over run account. Aside from that, Christopher seemed to be on the ball?
I seemed to have stepped on some toes with my posting which I apologize for. However I might point out that if I was going to close on a 700-800K house I might want to think through all of my options. Having the contingency account protects the borrower in case of any cost over-runs or god forbid something should happen to the contractor. Since you both seem to know quite a bit about the construction lending business you would already know that once you close on the construction loan you can’t make changes to the loan amount. If the borrower needs more money he has to come totally out of pocket for it. The other nice thing is that you don’t pay interest if you don’t use the contingency account. So I ask you why would you not want a free contingency to protect yourself? You know what they say… It is better to have it and not need it, than to need it and not have it. As for the interest rate during the construction period you are both correct that you can lock in your rate for the construction period at your final rate; however you are most definetly going to pay for that luxury (typically 1%), so in this case it will cost the borrower over 5K to lock in a lower rate for 6-8 months. Totally not worth it. Finally gentleman I am here to help provide information to people who ask for it, not to try and take business away from you. Once again sorry I stepped on your toes.
I am similarly with Danny with a Fico Score of 794 done by Wells Fargo on a line of equity by Experian. Issue is also this… we saw a lot for sale about 20 acres 90k in a growing area, a similar area about 10 acres with a home currnently in construction on it is currently selling for $547k on the MLS as I was told. I was thinking of purchasing the lot first and hold it l or hopefully when the price of the lot appreciate we might just sell it. I know it is speculative. Options opinions ?
For just the lot purchase for 20acres and under for future construction of a primary or second home your looking at about 90% financing…if its for investor purposes than that’s a different story…
Zach is correct. On a lot purchase of that size your downpayment will be larger than on a lot 10 acres or less which is what most of the national lenders cap out at. Larger lot sizes are considered, but you will have to find comparables in the area that are suited for the same type of construction. In your case what you might do is contact a local bank in your area and ask them what kind of terms they offer on lot/land purchases. They will most certainly be able to offer you a better deal than national lenders. You may be able to purchase the land and roll it into a spec loan at the same time.