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Hey Guys
My credit score is around 600-620. My wife's score is about a 680-700. I bought some land from my father, and its assessed at 80k and owned free and clear. My wife and I have all of our credit cards paid. I still have a couple small collections and a defaulted student loan im trying to clear up (in the amount of 2k, its not bad at all). Together we make around 110k/yr. She doesnt have any baddies on her report. With 80k in land, should we be able to get approved for a 200k mortgage? Thats basically 40% as a "down payment". We want to build on the owned land.
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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Getting a loan on new construction is a lot easier when you own the land free and clear, because you are only borrowing for the home construction. On the other hand, it's also a hit on your available income, since you still must pay taxes on it.
It's not a liquid asset available to sell if you get into financial difficulty before the house is finished. You will still have to come up with the down payment and qualify for the payments on the construction. Since construction loans are short-term, you would have to convert to conventional (refinance) after completion, or sell. Best to try and get that arranges, hopefully with the same lender ahead of time, in case the value ends up lower than it cost when completed. On new construction, the materials and labor costs can end up costing more than it's worth when completed depending on location and market at that time. A high percentage of foreclosures have been new construction so lenders are going to be wary.
Do you have any savings? The bank will want to see some liquidity in addition to the land value, if only for reserve funds. Also try to pay off any collections that are less than 2 years old and get your student loan out of default.
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