How to get best rate after credit has fallen?

Guest 0.10 Dollars($)

I bought a home 4 month ago and I'm renovating the property now. I have decided to use my personal lines of credit and credit cards for part of the renovation costs. But after I started taking out cash from my credit cards , my credit score went down from 760 to 650. What I have initially decided is to refinance and consolidate all loans after the construction was complete. But I'm afreaid I don't think I can get the best rate in the market, sp what's the right thing to do now that I've already started the construction?

Guest 0.10 Dollars($)

You are right, at the score that you have, it's difficult to get a mortagge at the best rate. The lender will possibly consider you as a credit risk borrower. I feel it's best to wait for some time, suspend the construction and then improve your score to get the funds at the desired rate.

Jessica

Hi Wilson,

Welcome to our community.

Since credit card debt is an unsecured debt, therefore using up too much of your credit cards and making minimum payments on them is a concern for the lender. Moreover, any increased balance on your credit card would imply an increased risk in offering you the loan. And, this is what is being projected through your low score.

In your situation, you can look out for construction loans if you do not want to withdraw cash from your credit cards any more. Usually construction loans are offered till the construction period is over.

However, this won't be a good option as far as paying down your credit card debt is concerned. So, explore other loan options that lenders may be offering you and then decide whether a construction loan would be the correct choice here. Other options that may work out are a home equity line of credit or a 401(k) loan. However, with a 401K loan, there are taxes and penalties associated, so think and decide for yourself.

Regards,

Jessica

ezmortgageloanz · Posted: Sun Sep 09, 2007 4:04 pm Post subject:

If the property was constructed at least 1 year ago or more, consider using a rehab loan from FHA (called the 203k).

It allows you to borrow funds based upon ARV (after repair value) up to 97%, permits the cost of rehab + closing costs to be rolled into the loan (and sometimes up to 6 months of PITI payments), receive the same rate from rehab to completion (and fix it for 30 years if you would like), etc., and like the other FHA programs, it isn't based upon credit score.

Using a personal credit line/credit card to fund renovations isn't the most cost effective method for renovating a property (and taking this approach will surely wreak havoc on your DTI and credit scores).

Regards,

Scott Miller

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