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Owner Builder Construction Loans Giving Boost to Borrowers' Credit Scores Around the Country

Sep 15, 2008
Owner builder construction loans have found a way to actually increase borrowers' credit scores while they build. This boost during construction is a drastic turnabout from the typical phenomenon of decreased credit ratings for individuals building a home. In a time of falling credit score averages around the nation, this shift from owner builder financing is a welcomed change.

It is no secret that the nation's average credit score has dropped significantly over the last couple of years due to the rash of foreclosures and mortgage delinquencies in the housing market. In fact, Experian, one of the three credit bureau giants, reports that the average credit score has dipped below 700, all the way down to 692.

It is also no secret that having a score above 700 is a key to obtaining the best financing rates and terms. So, for someone who wishes to build a home, the prospect of a potentially decreased credit score is discouraging. But, unfortunately, history has shown us that the typical construction loan borrower, whether hiring a general contractor or acting as an owner builder, does in fact see a decrease in their credit scores while they build.

Fortunately, recent work with owner builder construction loans has shown a refreshing shift in the way a borrower's credit score can be protected, during the construction phase. Indeed, an owner builder now has some solid options to help actually boost credit scores while building a home.

Let's start with some basic inherent features of the owner builder construction loan that are available to aid the borrower and protect the credit score. First, it is important to note that a good owner builder loan will not penalize the borrower for over-budgeting. In fact, it should be encouraged.

For example, if an owner builder pads his budget, there will be less chance of running out of money during construction and having to pay for costs out of pocket. By avoiding these out of pocket costs, you can avoid running up a high balance on your credit cards - one of the main reasons that borrowers often harm their credit scores when building a house.

So, how can an owner builder construction loan encourage over-budgeting? There are two main ways. One way is that a good loan will allow interest to accrue only on what you actually borrow. Thus, you can comfortably pad your budget knowing that you won't have to pay interest on any cost that you don't actually need. The second way to encourage over-budgeting is to allow an owner builder to take a cash payment for all leftover funds once the home is completed. By doing this, an owner builder with money leftover in the budget once the home is completed, can use those funds for paying down any other credit debts. This will, in turn, improve credit scores dramatically.

Another important, credit-protecting, inherent feature of an owner builder construction loan is something called an interest reserve, which allows you to avoid making mortgage payments out of pocket on your construction loan while you build your home. With this feature, you can more easily manage your money and continue to make your monthly payments on the home you are living in.

By using an interest reserve feature, you don't have to make two simultaneous home payments. This means there is a much smaller chance of being tight on money and being late with any mortgage payments - a huge credit score penalty.

These inherent features of an owner builder loan are providing a tremendous amount of protection to a borrower's credit score during construction. But, there have been some recent improvements that are truly revolutionizing the construction loans.

Nowadays, if you want to be an owner builder, you can actually boost your credit scores while you build by simultaneously working with a credit enhancement program. The best owner builder programs make this readily available for their clients by partnering with respected credit restoration programs.

In fact, it is sometimes possible to have the cost of the credit restoration program prorated from the financing fees of the owner builder loan. At the very least, it is usually quite simple to wrap the cost of the credit enhancement into the construction loan to minimize any out of pocket expenses.

Imagine building your own home as an owner builder and actually boosting your credit score by 100 points during construction - a time when borrowers used to see decreases to their credit. The key is ensuring that your loan program has partnered with a respectable company that provides quality, permanent credit enhancements. In other words, avoid credit restoration companies that only show short term, temporary credit boosts that will take your money but leave you with nothing to show for it in the long run.

If the owner builder construction loan program is working with a quality credit enhancement and restoration company, you will know it for a few reasons. First, the credit company will be comprised of licensed attorneys who specialize in credit repair. Second, you should see examples and case studies of individuals who have gained long term credit score improvements. And, third, the company should provide actual permanent removal of derogatory accounts from your credit report.

As an owner builder, you want to ensure that the credit restoration company will be aggressive in your favor and actually take the credit bureaus to court over your derogatory accounts. Therefore, they must be licensed attorneys. And, therefore, they can provide you with permanent credit boosts while you are proceeding through your owner builder construction loan.
About the Author
Chris Esposito provides owner builder construction loans for individuals who wish to act as their own general contractor and build their own home. For more information about project planning and construction financing, please visit Owner Builder 101, or call (877) 876-3688.
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