The lender wants to know what the loan is for and how it will be paid back. Convincing them that the proposed plans are sound and that you are able to repay the loan is your main objective.
A good presentation can make or break your chances of getting a loan. Financing, like the entire home construction process, should be viewed as a business project. The lender is your partner in this transaction, not your dictator or adversary.
What is Important to You?
Update your credit. This is no time to be confused with the other John Doe, Mr. Bad Debt. Check with the local credit-reporting agency for accuracy. A computer printout listing all the information on your credit history as it is being reported can be obtained for a small fee from the following credit-reporting agencies. TRW may provide the first report free, otherwise have your credit card in hand to charge the $8.00 fee.
- TRW (800) 392-1122
- Trans Union (216) 779-7200
- Equifax (800) 685-1111
- CSC Credit (800) 759-5979
Try to borrow enough to cover your worse case, with the lowest possible payments, for the longest period of time.
If you are frugal during construction and don’t use the entire loan, you need not take it all in your permanent mortgage (and pay interest on it).
All your paperwork should be neat, legible, and skillfully presented and should show a complete overview of your proposed financial plans. Scribbling on the back of an envelope scare lenders. They are captivated by quantities of paperwork and figures – it fills their professional lives. If the figures and calculations seem well researched and valid, they’ll be impressed.
Prepare a package for the lender to use when he presents your loan application to the loan committee. Include the following: A complete breakdown of your mortgage needs, including cost estimates on construction… by whom, how much, for what, and when. The lender may not understand it all, but they’ll be impressed by the effort that went into it, and it will soothe a lot of fears of uncalculated cost overruns.
Completed application that was provided by that lender. Plus, the documents that they request which may not be listed below:
- A check or payment for the application fees.
- Copies of homesite deed, survey, and site plan
- Copies of Building Plans. Usually 8½ x 11 photocopies are preferred
- Copies of dome company promotional materials such as brochures and videos
- Copy of Appraisal
- Income tax returns for the past 3 years
- Profit and Loss Statements for the past 3 years if you are self employed
- Employment history for recent years including name, address, and phone number for each employer
- Recent pay check stubs
- History of your current mortgage or rental payments
- Divorce documents and copies showing a history of payment if alimony or child support payments will be considered as part of your income
- Letters of explanation for any credit glitches or gaps in your employment
- Copies of all the sales documents relating to the purchase of your building site if recent, or relating to the sale of your current home if applicable
- Copies of your survey, homeowner’s and title insurance policies if you are refinancing your current home
Personally contact the lender and be dressed in businesslike attire. Maintain eye contact and address the lender by name as often as possible. Avoid slang and street language.
Avoid financing phobia. That’s your inability to adequately express yourself at a face-to-face meeting. Your fearful nervousness and uneasiness implies a lack of strength and confidence. You can overcome it.
Fear is usually caused by a lack of preparedness. Follow the trusted Scout motto: Be Prepared. It instills confidence. If the lender asks a question you can’t answer, promptly and confidently reply, “I’ll find out and let you know.” Then do so.
When meeting a lender act as if you’re equals. Meet on equal terms. Don’t shrink as if your future is in his hands. He knows you need money, or you wouldn’t be there. Just be straightforward and present yourself as the person who can accomplish your goals.
Monthly Energy Costs
Also discuss with your prospective lenders the superb energy efficiency of your dome, which could affect your total monthly housing costs. Building an energy efficient home can be rewarded with more lenient qualifying standards – your lower monthly energy costs can offset a higher monthly principal and interest payment.
Fannie Mae Guidelines
Be sure to point out that under Fannie Mae Underwriting Guidelines, domes may be compared to distinctive custom designed homes.
Mortgages on these types of properties can be sold in the Fannie Mae secondary mortgage market as long as the properties conform to all the aspects of their guidelines. Of course, the lender needs to be sure that the neighborhood and the quality of the construction measures up to criteria such as loan-to-value ratio and market value.
If you equip your energy saving dome with comparably insulated doors and windows and an efficient heating and air-conditioning system, your lender may apply the energy efficient properties sections of the Fannie Mae Underwriting Guidelines. This could give you more favorable mortgage terms, resulting in a larger mortgage for your qualifications.
Personal Financial Statement
Paint a full and true picture of your finances and employment record. The lender wants to be sure that construction won’t tap you out completely. Will there be enough cash left to handle emergencies?
Don’t let the lender find anything unexpectedly. It will send up a red flag at the least, and could be illegal at the worst. Avoid last minute surprises. Be up front with information. Reveal the good, the bad, and the ugly. If your mortgage payments were late a few times because of illness or a job layoff, tell them ahead of time.
If it becomes apparent at some point that the lender is not in sympathy with your proposal, it is best to ask what modifications would be needed that would make your application more attractive.
If the guy simply doesn’t like the loan under any circumstances, it might be best to just strike that lender from your list. Rise, smile, shake hands, thank him for his time, and wait until you’re outside before yelling and calling him a shortsighted dinosaur. With your short-term frustration vented, just head to the next lender on your list. If you’re creditworthy and you’ve put together a good presentation, someone will grant you a loan.
- Be professional and open minded
- Be enthusiastic
- Be confident and convincing
- Be honest and forthright
- Be thorough, but concise
After You Have Made Application
Don’t be too impatient. Give them some time. Yet, maintain communication. They may request additional information. Get it ASAP. Don’t let too much time lapse. Favorable impressions fade with time.
If Your Loan Application Is Refused
Ask the lender to take the time to go over your application and its failings. Be positive, not defensive or argumentative – learn from this.
Ask why you were turned down. The lender is required by law to tell you. The reason for refusal may have nothing to do with merit or your application.
You can’t change this lender’s mind, but maybe you can make some changes before you contact the next source. Correct any valid, concrete reasons for refusal (such as preparing yourself better, obtaining written verification of elusive financial details, or reducing the size of your planned home and therefore the size of the mortgage).
Get really determined and put your creativity to work. Consider alternatives for all or part of your needs such as stage financing or bootstrap financing.
Your drive, ambition, and desire to succeed should keep you talking to sources until you find one that says yes.
UNDERSTANDING THE JARGON
ADJUSTABLE RATE MORTGAGE: A mortgage which periodically adjusts its interest rate according to a fairly stable, outside index such as United States Treasury Bills. Most adjustable rate mortgages that change their rates up or down once a year, have a maximum rate change of 2% per year and 6% over the lifetime of loan.
AMORTIZATION: The gradual paying off what you owe on your mortgage by making regular installment payments. Part of each equal payment is principal, part interest. Since the interest is calculated monthly on the remaining balance, the part of your payment that is interest decreases with each payment and the part that is principal increases with each payment.
APPRAISAL and APPRAISAL FEE: An elaborate judgmental report determining the market value of your property and its improvements. For construction loans where the improvements do not yet exist, value is based on blueprints. The fee compensates the lender for the costs of hiring an independent appraiser.
BALLOON MORTGAGE: A large lump sum is due at the end of a short term (typically 3, 5, or 10 years) as the last payment of a mortgage. Monthly payments are amortized over a long period of time (typically 15, 20, or 30 years) so they are small, equal, and manageable.
CLOSING COSTS: Sometimes called settlement costs. All the expenses incurred in a loan transaction. They can be substantial and must be paid in full at closing (before finalization of your loan).
CONVERTIBLE RATE MORTGAGE: A mortgage which has a low interest rate in the first few years, often an adjustable rate, but which is converted in a later year to a fixed rate mortgage for the life of the loan.
CREDIT REPORT and CREDIT REPORT FEE: Obtained from a reporting agency for a fee, the report determines your financial obligations and history of payment.
DISCLOSURE REQUIREMENTS: Federal law requires every lending institution to provide its loan applicants with complete and accurate information about the actual cost of borrowing money.
EQUITY: The cash value of your property over and above the money owed on it (mortgages, second mortgages, liens, etc.). Almost invariably the amount of your equity grows over the years – it is the proverbial nest egg.
GRADUATED PAYMENT MORTGAGE: A mortgage whose payments gradually increase over the years. Lower payments in the first years help young homeowners with limited incomes manage mortgage payments. Theoretically, the payments increase as the income increases.
GROSS INCOME: Your total income from wages and commissions before any deductions are made such as taxes withheld.
INSPECTION FEE: Each time you request a construction loan draw, the lender will send a representative to inspect your construction site and could charge a fee.
INTEREST: What lenders charge borrowers over a period of time for using their money. Expressed as a percentage rate.
LOAN APPLICATION FEE: Not to be confused with the loan origination fee, this is a stated amount (usually $50 – $250) which the lender charges its customers for reviewing the application form with the opportunity (but not the guarantee) of obtaining a mortgage loan. It is not refundable if you are turned down.
LOAN ORIGINATION FEE: An extra charge, paid in cash at closing, that covers the lender’s administrative costs, such as reviewing your application, appraisals, obtaining and reviewing the credit report, and preparing documents. It is either a flat fee or a percentage of the loan.
LOAN-TO-VALUE RATIO: The percentage a lender will loan of the overall value of the property once your new home is complete.
MORTGAGE: A promise to pay back a loan, with real property as security. Simply stated, if you don’t pay off the loan, the lender, like the cartoon villain Snidely Whiplash, will take your property. In reality, foreclosure is a lengthy legal process.
MORTGAGE INSURANCE: A policy with an independent insurer against you defaulting on your mortgage. There’s no benefit in it for you except lenders will write mortgages with lower down payments, since their risk is lessened. It usually costs you a fee at closing and a percentage of the face value of the loan added to the monthly payment.
MORTGAGOR and MORTGAGEE: Always confusing! You, the borrower, are the mortgagor. You are the one who makes the promise to pay back the loan and offers up your property for collateral. The lender is the mortgagee, the one to whom the mortgage is given.
POINTS: Also called discount points or prepaid interest. Don’t get excited – it has nothing to do with a discount for you. It represents a discount on the value of your loan. They are most commonly charged when money is tight – the tighter the money supply, the more points you pay. Each point is equal to 1% of the face value of your loan. They are paid in cash at closing.
PRINCIPAL: The amount you borrow at the outset. Later, the amount you still owe. The amount upon which interest is calculated.
PURCHASE MONEY MORTGAGE: Also called seller financing. A mortgage that finances all or part of a purchase for a buyer and is held by the seller of the property.
RECORDING FEES: Minimal charges paid by the borrower at closing to record the mortgage with the Clerk of the Court – usually just a few dollars.
SELLER FINANCING: The owner of a property grants a purchase money mortgage to the buyer at closing. The buyer pays for the property over a period of time by making payments of principal and interest to the seller.
TERM: The life span of the mortgage expressed in years.
B U I L D I N G A D O M E ?
How will you finance it?
How much can you afford?
What are your sources for financing?
What do you ask lenders?
How do you better your chances of getting a loan?
What are your alternatives to a mortgage?
8777 Holiday Springs Rd.
Rockledge, FL 32955-5805