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question about 90 % letter

Hello,
Hoping someone can answer this. I am in the process of having a new home built on some property that i own outright. The builder is going to provide the construction loan to build the home. Before signing a contract he wants to be sure that we are going to be able to get the long term mortgage. My mortgage broker has provided me with a 90% letter of pre approval. I was asking them if it was possible to get a 100% loan commitment letter if there is such a thing. They said that banks will not issue that on something that doesnt exsist meaning the home that isnt built yet. Is this true. ???

Niicss's picture
Niicss | Joined: October 3, 2005 11:54 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Your mortgage broker is correct in saying so. Moreover, these days, lenders hardly provide borrowers with 100% finance. Borrowers should pay a down payment of at least 20% in order to secure a conventional loan.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

this is all confusing. i read the original post as saying that the lender is giving odds - 90% that the loan will be approved; not that the borrower is seeking 100% financing and only being allowed 90%.

lwpickett, please restate your question and verify what it is that you're seeking, precisely.

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lwpickett's picture
lwpickett | Joined: March 5, 2010 12:26 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I am seeking a 100 % guarantee from a lender for my long term commitment if those are possible to get. ? Before putting out his own money to build my house the builder wants to be sure that we will be able to pay him back when completed.. As I understand 90% means that I am being guaranteed 90% of the final cost of the completed property. The home is costing 235k to build the appraisal we had done on the plans say the whole property once done will be 365k..

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

but if you only need $235k to finish the home, what's the need for $328500?

so...if i read you correctly, you're looking for a guarantee for 100% of the amount of funds that you'll need...is that a fair assessment? that means you wish to borrow $235K, does it not?

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jveenstra's picture
jveenstra | Joined: November 10, 2008 09:03 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

You can get a commitment letter from a lender whcih states the loan is approved subject to no changes in any information that would change such an approval.

That means if you lose your job and have no income the day before closing, you do not get the loan. So, no one can or will give you a 100% guarantee. They will give you a 100% guarantee as long as nothing changes that would have caused the lender not to approve the loan in the first place.

To get the commitment you need to proces the mortgage, appraisal, etc

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

big ups to you john if you understood this better than i did.

by the same token, i've never heard of a 90% preapproval if your interpretation is the right one. have you?

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jveenstra's picture
jveenstra | Joined: November 10, 2008 09:03 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

George, I'm about 90% certain I've never heard of that

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

That is what I am looking for a letter saying providing nothing changes With my financial picture I am approved for the 235k for the cost of the home. What I was told by my mortgage broker is that I can't get that even based in my financial picture staying the same because based on wellls Fargos guidlines they will not give that type of commitment on something that is not built. So they gave me this 90% approval letter to show my builder, wich ad far as I see does little to make me feel secure about tge long term being there for sure.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I am in Alaska we have been known to do things a little different up here LOL
maybe the 90% thing is a local deal.

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jveenstra's picture
jveenstra | Joined: November 10, 2008 09:03 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

lwpickett, now I understand the question.

Find someone else besides Wells Fargo. Someone will do it. All it is is a mortgage commitment based on present income and assets and property and credit is subject to reverification of income and assets and credit prior to closing

Not sure why Wells Fargo has a concern with that, but, if they do, find somneone else.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

as noted, maybe it's a frontier kind of deal...wells fargo has been around in one way or another since the frontier days, so maybe they're going back to the extremely old school way of doing things. didn't they superced the pony express after all?

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jburke's picture
jburke | Joined: March 9, 2010 02:26 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

I don't think a lender will give any borrower a 100% commitment without a finished house. Remember, this is the only collateral the lender has. What happens if property values drop below your approved loan amount by the time your ready for your perm loan?

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