Construction Loans.

The mortgage market meltdown that began in the third quarter of 2007 severely affected the construction lenders. First major institution to announce that it is dropping out of the market was late Washington Mutual, followed by IndyMac Bank, Citi Bank and Chase, who were then followed by smaller banks and lending institutions.

Though most every bank is still in the mortgage business none of them have ventured back into the construction loan field. The reason is the fact that construction loans, whether made for ground up construction or remodeling loans are based on the future value of a property and banks are finding it difficult to judge present value in declining markets, let alone future values.

There are a number of lenders who still make construction loans but they are only a few and far in between and their guidelines are much tighter than before.

Gone are the days when stated income construction loans were routinely made for up to 100% of the future value. Under current guidelines a barrower will be lucky to find a lender willing to make a construction loan at 75% loan to future value given that the borrower can fully document income and has impeccable credit.

For those interested in remodeling their homes FHA offers a construction loan program called 203k which some lenders offer.

The FHA 203k is a remodeling loan only and offered for single family residences. The loan may be used to remodel an existing home and add a second unit to it so long as the second unit shares at least one wall with the original structure. FHA never offered any stated income programs so the borrower has to fully document income and the loan limits are subject to limitations.