Summary: Borrowers with bad credit, poor credit and even bankruptcy can get construction loans, homeowner loans, secured loans, or a home mortgage loan if they have worked hard to repair their credit.
Carl, I have gone down the road of debt and have gotten myself in a lot of trouble. I no longer have the credit for a construction loan, or any loan.
Is it possible with an above average job, and a lot of extra time to build a house out of your pocket? I.E. pay cash for site prep, save, pay cash for foundation, save, etc.
Thank you!! Jason
Hi Jason, it is almost impossible to build a new home “out of pocket”.
It is also almost impossible to get a mortgage with bad credit and unfortunately while they are secured loans, construction loans are mortgages.
Secured loans are usually considered by lenders as safe loans and even though construction loans are secured loans they are considered the riskiest of secured loans.
Even if you could find a mortgage with bad credit, the mortgage rates for bad credit would be very high…too high.
Over the years, I have seen people try to do what you are suggesting, and I couldn't even imagine the Hell they were going through.
Every dollar they had was invested in their house they were trying to build. The strain, both physical and mental was terrifying.
To make matters worse, the houses were progressing so slowly, the structures were deteriorating before their eyes. It was taking years, not months to build.
The elements were winning, as they always will. Their hard earned “cash” was being destroyed.
If you can’t get a house “weather tight”, or “dried in” in a relatively short period of time, you could lose everything. Foundations can’t be left to the elements, nor can lumber, windows & doors, or sheathing. (See photo below)
In a few cases, back when loans didn't require the high credit scores that they do now, we were able to “bail people out” of their hellish situation with a construction mortgage…and our mortgage rates for bad credit were not too high then.
But now as you know, credit has tightened up, so bailing people out is not as viable an option for mortgage lenders.
So, what I would do if I were you is this: Take that “above average” job (and income, I assume) and spend the time and effort to repair your credit.
It won’t take as long as you might think. Instead of trying to pay cash to build, pay down your debts and get your credit repaired to enable you to get construction loan.
Spend time on getting your credit cleaned up.
Here's a free credit score calculator from Bankrate.com and myFICO® that you can play with and see what affects your credit scores. There is also a link to myFico® where you can get your credit scores.
Your credit score determines the interest rate you will pay and your credit worthiness to lenders.
The higher your score, the lower your rate and monthly payments will be, as well as your chances of getting a construction loan.
Then, with a construction loan, you can get the house built in a timely manner.
Getting a mortgage with bad credit is difficult, but even borrowers who have gone through a chapter 7 bankruptcy can get construction loans and other homeowner loans after 2 years have elapsed and if they have worked hard to repair their credit.
Millions of fine people like you have traveled the “road of debt”.
They made it back home wiser for the experience.
Smart mortgage lenders know they are often better credit risks for the journey.
And by the way, homebuyers with less than perfect credit can get home mortgages with FHA home loans.
Good luck, Carl Heldmann
