Getting a loan these days isn’t easy. Finding one to build a home is even harder. Even a burrowing mole in dark sunglasses can see this. It’s certainly not a secret. This can be very discouraging if you want to build your dream home right now.
Despite the confusing economic climate and the narrowing choices, home building lenders do still exist. But, the requirements for approval have changed.
Understanding What Banks Want
It’s a bit difficult not to make disparaging remarks about banks right now. They certainly have contributed to their own demise and are suffering from a poor reputation. Yet, they still hold the cards if you’re in the market for a loan, and logic demands that you set aside emotion and study the requirements.
Simply put, banks want to earn a profit on the money they control with as little risk of losing that money as possible. It’s not their money. It’s your money. It’s your neighbor’s money. It’s your family members’ money. So, they must take care and invest it wisely. And, very often, the banks must answer to the shareholders concerning their management practices and their profits in using this money.
Where Does the Money Go?
Bank managers look for the safest investments possible. They are constantly on the lookout for opportunities to increase profits, assets, and depositors. To make these profits and grow their business, they cannot sit on the funds. They must invest them.
Without getting into stories of the greed that caused many to speculate on rapid gains and easy profits, we understand that lenders must put the dollars they manage to work. Now, in this economic and mistrustful environment, they are extra careful where they invest those dollars.
Is Real Estate a Good Investment?
Another obvious victim of the current economic debacle is real estate value. As home sales lag and foreclosures abound, appraisals and values have, in many cases, plummeted. This translates to an overall sentiment that real estate investments may not be predictable. Banks are super cautious these days.
Uncertainty is to a bank as a tornado is to a mobile home park. If what you fear could happen does in fact happen, there’s going to be a mess to clean up. And nobody wants another mess right now.
Yet, there are banks willing to make home loans. And there are banks willing to make new home construction loans. They just make you work harder to prove yourself.
Are You a Good Investment?
It all comes down to the investment. Are you worth the risk? And if you are, is your project something they can count on? They have ways to make sure, and these ways affect you.
Banks are requiring more money down, more income, better credit ratings and more assurances that your home will support the value being projected for it. If you can assure them of all these things, it can work. But, it’s nothing like it was a couple years ago, if there’s a question that goes unanswered, you’re likely out of luck.
What You Can Do
Unfortunately, you have to play their game. If you can fulfill the requirements right now, you’re in good shape. You can move forward with your project. On the other hand, if you fall short, you’ll have to wait.
Find out what they want. And go to work on fixing the problems. You may need more time on your current job. You may find that you have a credit issue to clear up. Your credit score may need to improve. Your debt to income ratio may need to improve. Ask the bank exactly what factors contributed to any loan decline and go to work to fix them.
There’s no real harm in waiting right now. But, make the waiting productive. Improve your situation now and you’ll be sitting pretty before you know it.