Build House on your land
Construction loans finance building on land. Regardless of your credit history, financing home construction is usually going to be more challenging than finding a mortgage on a prebuilt home. When you have bad credit, the situation becomes even more challenging. Generally, your choices are to get creative or to delay your project and work on your credit. At times, you may need to do both.
Builder Financing
Sometimes, the builder will finance the construction for you. Given that the builder wants to get the job done and makes money through construction completion, extending financing regardless of your credit is feasible. This also has the advantage of making the builder more accountable. If he's paying the interest while he builds your home, he's going to be out-of-pocket for any delays in delivering your home. However, you'll still need to find a permanent loan once the construction is finished and your builder wants to be paid off. The builder maintains a lien on the home with the ability to foreclose if you don't pay off the loan.
Private Financing
Private lenders are individuals or small companies in the business of making loans that banks won't make. They can be both more and less understanding of credit issues than banks. On one hand, the private lender can overlook credit score issues or past problems. On the other hand, you'll have to convince the lender that you can repay the loan. Most private lenders charge higher rates than banks and require sizable down payments. This type of loan might last longer than your construction period, although you'll probably still need to refinance it at some point.
Small, Local Banks
Small, local banks are an excellent alternative if you need construction financing. Like private lenders, they have a more flexible decision making process. If you can reasonably explain your bad credit, the bank might overlook it. The small bank lender might offer you a rate closer to what you'd get in the broader mortgage market, saving you money. While you're unlikely to get a 30-year fixed mortgage, especially if the bank makes the loan with depositor money and holds it in its portfolio, you can probably get a longer term than you would elsewhere.
Working With a Broker
Another option is a mortgage broker who has experience in construction loans. Brokers have access to multiple lending sources and can shop around on your behalf to find the right loan. They can often help you with your credit issues, potentially opening up even more more opportunities for you or saving you money with a lower interest rate due to a higher credit score.
