TLDR: After 19 months (and nearly $12,000 in construction loan interest), my wife and I are struggling to get approved for a home mortgage that refinances our construction loans. Please help! Sorry for the wall of text.
Any advice on how to get out of this mess would be greatly appreciated.
In March 2015, my wife and I purchase a piece of property where we wanted to build our dream home, just outside of my wife's hometown – a very small, rural town in Tennessee. We're young (mid to late 20s), but we were ambitious and excited about the possibility, especially after spending several months trying (and failing) to find an existing home that we liked enough to purchase.
After paying on the land loan for several months and meeting with different building contractors, we picked some carpenters/contractors to help us draw up plans for our home. They were recommended to us by some friends, and they seemed honest and reliable.
After meeting with a bank to discuss financing the construction of the home, the bank's in-house appraiser believed that the home would not be worth what the contractors said it would cost to build it. After making some adjustments to the plans, the construction loan was finally approved, and they first broke ground in March 2016. The basement was poured in late April/early May, and the house was in the dry by July.
Once insulation, electrical/plumbing, and HVAC was nearly completed in September, it was clear that we were going to run out of money before the drywall could even be put up. Once our contractors knew that we were running out of money, they stopped showing up. Other crews stopped showing up – the painters stopped halfway through painting the siding.
Fast forward to February 2017 after a few stressful months of trying to pay people out of pocket to work on the home, and the bank finally agreed to loan us an additional $45,000 to finish construction, with my wife's parents as co-signers. That amount was based on contract prices that we received from carpenters, painters, etc. (By this point, we had fired our initial contractors. I should clarify that we never actually signed a contract with these "contractors," so there was nothing actually requiring them to build the home at the price they originally quoted us.)
The home was finally finished this summer, and we moved in July 1. We made some final touches on the interior of the home and then met with a home financer to discuss a mortgage. Based on the appraisal, we would need to pay private mortgage insurance for a few years. This frustrated us, but we just wanted to put the whole mess behind us and finally have a regular mortgage payment.
The financier contacted us yesterday and explained that the underwriters he spoke with said it would not be possible to refinance our construction loans (remainder of land loan, initial construction loan, and final "supplemental" loan). Our loan-to-value ratio exceeded 80%, and based on some federal rules (?), it is not possible to refinance with a cash-out when the LTV exceeds 80%.
Cash-out? Right. Well, when the bank loaned us the additional $45,000 to finish the construction, they did not place a lien on the property for this loan. Apparently because of that, the line of credit is treated as a cash-out option.
So, we're stuck. By my count, we have sunk $53,000 into this home out of our own savings – not even including the loan interest that we have paid. As young people with very modest incomes, that is a LOT of money for us. Most of that went toward the land early on, but we also spent a lot of money on the actual construction: appliances, bathrooms, interior painting (which we did ourselves), door knobs, etc., as well as the money we paid to some workers over the winter in 2016-17 after our initial construction loan ran out.
We aren't sure what to do. The financier is supposed to speak with our bank on Tuesday (since Monday is Labor Day), but he said that would be some obstacles.
Any advice? What options do we have? And does anyone think we might have any legal recourse against the initial contractors or the bank?
Submitted September 03, 2017 at 12:50AM by motown89 http://ift.tt/2x1Vb23
