Money Rant

By Chris Esposito

 Owner builder construction loans have become harder to find as the mortgage industry has all but done away with these highly specialized products. The owner builder programs that remain strong are using the industry titan, Fannie Mae, for rates and pricing. How does this affect you? Your loan will have higher financing fees (discount points) wrapped into it if your credit score is not strong.

In the world of owner builder construction, the borrower already expects to pay more for the loan than he would expect to pay for a typical construction loan or certainly than a simple purchase or refinance mortgage. In fact, these higher costs are not of utmost importance, because they are offset against the hardy amount of savings that an owner builder will earn by cutting out the costs of a general contractor during construction of the new home.

However, every little bit helps. And, if an owner builder can avoid additional fees that come with lower credit scores, then it will help to maximize the amount of sweat equity that gets built into the home. Obviously, the borrowers with FICO credit scores above 740 will have nothing to worry about. It is the borrowers with credit scores that fall below 700 especially that will need to be prepared to wrap additional discount points into their loan. So, let’s take a look at why this is happening, and then determine if the construction is still worth the extra fees.

The bulk of the remaining owner builder construction loan programs across the country are selling their end products to Fannie Mae, the mortgage industry titan who stimulates lending by purchasing bundles of mortgages from banks. This is not unusual. In fact, it’s the typical outlet for most lenders in the U.S. The issue for owner builder loans, though, is that Fannie Mae has set some strict pricing guidelines that correspond directly to the borrower’s FICO credit score and loan-to-value ratio.

With owner builder construction, the borrower typically builds his home for less than 80% of the house’s appraised market value. Therefore, when looking at Fannie Mae’s guidelines for pricing, it is very helpful that owner builders don’t have to concern themselves with any loan-to-value ratios above 80%. This truly saves them from a lot of the higher pricing tiers.

However, it is the credit scores that must be closely observed. For example, using the 80% loan-to-value ratio, a borrower who has a credit score below 700 can expect to wrap one extra discount point into their loan. If your credit score is below 680, wrap an extra 1.75 to 2.25 points into the loan. One point is equal to one percent of the loan amount. Therefore, if your loan amount is $200,000, then wrapping an additional 1.75 points into your financing will mean a loss of $3,500 in equity in your home when it is completed.

So, is it worth it for an owner builder with a lower credit score? The answer to that question depends on the amount of equity that he plans to save during construction of his home. For example, on a $200,000, you may save $40,000 by eliminating the costs of an owner builder and managing the project yourself, perhaps even doing some of the minor parts of the labor. In this case, the extra $3,500 wrapped into your loan amount shouldn’t make a big difference to you.

It is important to note that these owner builder construction loans make allowances for a borrower to wrap these fees and closings costs into the loan amount, so you won’t have to pay them out of pocket. In the example above, the extra $3,500 in discount points that occurs due to a lower credit score will not mean that you must pay an extra $3,500 at closing. It simply means that an extra $3,500 is being financing for you. In the long run, you can equate this to $3,500 less equity that you get to build into your home by being an owner builder.

In addition, the extra fees may be well worth it to you if the owner builder construction loan has a one-time-close feature, meaning you won’t have to go through a second round of closings once your home is built. If you can convert straight to your permanent financing without having to worry about a second round of closing costs, then the extra fees in the one-time-closing are not overly troublesome. For an owner builder about to save a lot of money during construction, the financing program that allows him to do so will still be well worth it.

Therefore, if you are considering applying for an owner builder construction loan that will allow you to build your own home without requiring a general contractor, be prepared to have higher costs associated with the loan than you would have if you were buying a house or using a fully approved builder for construction. However, remember to look at the big picture and calculate the overall reward of the substantially lower construction costs for owner builder projects.

Chris Esposito provides owner builder construction loans through the Owner Builder 101 program, designed to help you build your home without paying the costs of a GC. For more info about the process and financing for an owner builder, go to www.OwnerBuilder101.com, or call (877) 876-3688.

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What Is An FHA Streamline Refinance?
By Greg Shuey

 Studying mortgage refinancing is not really your ordinary person’s cup of tea. Most of us would rather just go for the best solution provided without having to understand the intricacies of the solution itself. This way, we can just go on and start the process of preparing our new mortgage and closing the old one. After all, this is what FHA refinance mortgages do. FHA Refinance Home Loans, in particular, devises the most suitable solution to meet your particular needs for that home loan.

The FHA (Federal Housing Administration) offers you assistance in refinancing your present home mortgage, offering you several benefits on the side, too. The FHA actually acts as your guarantor so that lenders would feel more confident about providing you the funds that you need.

FHA Refinance Mortgages has a lot of experience in this field and can guarantee foolproof assistance. What they do is they insure your ability to pay off your loan. This way, lenders can then offer you a way better mortgage plan and rate while feeling confident that the borrowers are capable of repayment.

Most of the time, FHA loans are given out to borrowers that have good, long-standing credit scores. However, there are still some people who are still approved for these loans despite not having a good credit score. Some of these people have credit ratings that are far from impressive, but as long as they have no bankruptcy record for the past five years, then they still have a chance of getting such loans approved. Single parents whose income comes from only one source are also qualified for these loans. As long as you qualify, FHA can certainly be of much assistance to you.

What then is the difference between the conventional mortgage and the FHA Streamline Refinance Mortgage? FHA Refinance Mortgage benefits should be outlined to answer this question. Firstly, more exclusive mortgage options are offered by FHA Refinance Home Loans. Secondly, a down payment of just 3% is needed on the part of borrowers. Closing costs can then be financed via the mortgage. Thirdly, FHA is willing to assist you in finding homes and lending scenarios that do not require borrowers to make down payments. Fourthly, FHA loans also cover mobile housing as well as manufactured housing. Moreover, you are allowed to use the money you borrowed through your second mortgage to deal with the repairs of your own home.

By educating yourself on the basics of FHA loans and what FHA Refinance Mortgage can do for you, you can better equip yourself towards getting the best available mortgage.

Greg Shuey is a utah mortgage broker with Utah Financial. Together with Chase Gunderson, we specialize in FHA home loans and FHA Streamline loans. We are here to educate and help you along the way when researching and obtaining a Utah FHA Streamline loan.

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