Posted: 3/25/2007 5:54:47 AM EDT
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I am getting ready to build a house next year. My credit rating is very good...about 820. I have no vehicle debt and no credit card debt. I have no negative things on my credit report. Here's the issue. My wife has a past bankrupcy from before we were married. It was disposed of in 2005. Her credit rating is pretty bad....as you can imagine but I have been helping her get it better. I will be putting about 40% down on the final construction and once it's complete, I'll have over 50% equity in the house. The bank will loan me the money without problem. My concern is that my wife's poor credit will affect my interest rate.....will it??? Thanks!! |
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Only if she is on the loan. If you need her income, it still may not be bad since you are talking about a construction loan, which are usually held by the bank. In other words, your bank will be the only decisionmaker with regard to the risk. However, the bank may still try to take advantage of the situation. I put bankers just under tow truck drivers but over lawyers and used car salesman in terms of professions have the highest propensity for an individual being a sleaze ball. Everything gets autocratic when underwriters get involved for conforming/salable loans. Thats when your wife's credit will screw you to the ground. |
Denied a loan? |
Well I don't need her income to qualify for the loan. I also have a great working relationship with the bank. I got her a car loan through that bank and we paid it off way ahead of schedule so she has a decent record with that bank. I'm not worried about the construction loan. I'm more worried about the final loan. However, they won't have much risk since I'll have more than 50% equity once the house is complete. |
banker? tow truck driver? lawyer? or used car salesman? In the early 80's, I was part of a partnership that bought foreclosed home and high risk mortgage notes (read on the verge of foreclosure) that rehomed and refincanced people into foreclosed homes that they could afford. I have seen firsthand how downright evil bankers can be when they can take advantage of people. By the way, the bankers hated us because they thought they were screwin us by selling us a future foreclosure but in reality we had already cut a deal with the lendee. Got nusance sued more than a few times. |
Bearing in mind that this advice is worth exactly what you are paying for it, I recommend carefully reviewing the penalties section of the construction loan and that you make a contract with the general contractor bearing those penalties in mind. A friend made this mistake for me to learn from so that I later did not have near the problems that he did. |
Fortunately, my experience now with sleaze ball bankers is second hand. The tow truck drivers are the ones I should let up on since all of my experience with them is when I was in college. |
Care to elaborate on that a little? I plan to have the house structure build for me and then I'm going to finish the rest myself. I've done a lot of remodeling so I'm pretty familiar with construction. My brother in law just had a house built and I learned a lot from his mistakes. I'm all about learning from other people's errors!!!! |
In short, try not to be liable for any penalties from the bank due to problems caused by your contractor. Most bank construction loans presume a schedule of completion for finishing certain phases of the construction. There are a myriad of different scheduling aspects and penalties depending on the structure of the loan as well as even the type of construction. You are the one taking out the loan but the contractor is the one that usually screws things up, unless there is a labor problem or inclement weather. You have to look at the penalties that the bank assesses for not making schedule. Basically, you want to be able to pass those penalties on to the contractor as much as possible or minimize the possibility of penalties by negotiating the schedules. This also helps to motivate the contractor and you want a motivated contractor. Believe it or not, site prep and foundation work has more hang-up for one reason or another than any other phase. Everything from the locals wanting to save the trees to mysterious glacier boulders in the site. Oh yeah and my personal favorite, the construction equipment is too loud. Sounds like you will not be dealing with the finishing trades. Thats good in the sense that finishing tradesman can bust a schedule better than anybody. But on the other hand, they are the ones who usually make the building what it is with their talents and skills. After all these years, a few trim carpenters, drywallers, HVAC and flooring guys still amaze me with their craftsmanship. |
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With that kind of equity and credit score you would be fine (even if you didn't have that much equity you would be fine). Most full doc programs will use the primary wage earner's mid score, although some banks will have a minimum required score for a co-borrower. However, the problem you may have is with your wife's recently discharged Bankruptcy if you want to have her on the mortgage. It will depend on the overall loan package- income, tenure (stability), credit scores, equity, reserves (liquid assets available). Since you figure you can qualify without your wife's income, these issues would only come up if you want her on the loan, if not then it wouldn't be an issue. |
You'd think a Mortgage Banker/Broker would be offended by a statement like that, wouldn't you? Funny thing is, I agree with the high propensity for individuals in the banking industry being sleaze balls. Your statement was worded very well- it's not that every banker is a sleaze ball by any stretch of the imagination. However, being in the industry and seeing what many of my "peers" do to make a buck is sickening. The number of misleading ads, flat out lies to clients, and details of fraudulent activities I've heard some banker's involved in is quite disturbing. Unfortunately, many times the customer doesn't even know they were lied to or ripped off until it's too late- sometimes leading to foreclosure, bankruptcy, or other financial difficulties. However, there are also many respectable, moral, and ethical bankers out there as well. The most important thing to keep in mind is to ask questions. Ask for as many details as you can think of, and then find some more questions to ask your banker. I have always done business based on the long-term, but too many people are in it for the quick buck. I have built my business on customer referrals, and you can't do that if you screw people over like many do. I prefer to educate my clients, and then they have a better chance at unearthing some of the shady things other bankers try to "hide", primarily by not disclosing them. In most cases it's probably not blatant lies, just failure to disclose that hurts the customer because they don't know all the details of what they are being "sold". Here's to all the respectable, moral, and ethical bankers, tow truck drivers, lawyers, and used car salesman who do business the right way 
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I have a friend that I just discovered is a sleeze ball mortgage broker. My banker is great but we also business bank with them. Saturday I met a non sleezeball used car salesman. He was polite, genuine, and no bullshit. The guy has sold cars at the same dealership for 20+ years. They are sterotypes for a reason but its nice to find the exception to the rule. Back on topic.....I would have your bank run the loan both ways and see how much difference is and decide if its worth that to you to repair her credit because nothing fixes credit like a mortgage. Whit |