With all of the recent changes in the mortgage industry, it can be tough to keep up with the different requirements for the different loan programs available. Owner builder construction loans are probably as complex as residential mortgages
can get. But, there are some simple rules about your credit scores that can make understanding the owner builder guidelines a little easier.
The first rule of thumb for an owner builder construction loan is that you will want to have a credit score of at least 620. Obviously, the higher your credit score is, the better it will be for your loan. However, if you want to be an owner builder to build your own home, then you will need to have a middle FICO credit score of at least 620.
Technically, for most owner builder loan programs, there is no strict minimum credit score requirement. In most cases, your loan application will be run through an automated approval system, which will analyze your overall risk factor. However, even without a strict minimum, you most likely are not going to get the approval through the computer system without at least a 620 score.
Along those same lines, an owner builder may not get approved for their financing even with a credit score above 620. In addition to analyzing your credit score, the approval system will also examine your current credit health. In other words, if you don't have any current, healthy accounts that are at least one to two years old, then having a credit score above 620 probably won't be enough to get your approval.
Likewise, owner builder construction loans are going to provide better rates in terms for borrowers with higher credit scores. Specifically, having a credit score above 700 will help you get the best rates and terms available.
It is important to remember, though, that a strong credit score will not assure an owner builder of getting approved. In other words, an owner builder with a strong credit score is not going to get through underwriting if he has too low of a documented income or too much debt. Furthermore, a strong credit score won't be enough to get the loan approved if the project has a poor appraisal or an unrealistic budget. Therefore, a good credit score is just one piece of the puzzle for a strong owner builder file.
In fact, here are some of the specific advantages of having a higher credit score when applying for an owner builder construction loan:
1. An owner builder who has a high credit score can often get approved with less than the normal amount of savings in reserves.
2. If you have a credit score above 700, you will have a much smaller down payment requirement for an owner builder construction loan.
3. Also, an owner builder with high credit scores will get better interest rates as compared to someone with just average credit scores.
So, even though a having a credit score won't get an owner builder approved if there are other glaring issues with the file, it will certainly provide the three advantages listed above.
Therefore, if you are considering being an owner builder, make sure you have a middle FICO score that is at least above 620. If your score is just barely over the 620 mark, then expect to have stricter down payment and interest rate requirements for your owner builder construction loan. So, if you have a limited amount of savings in the bank, you may want to work to get your credit scores above 700 before applying for an owner builder loan.
