getting a mortgage loan, whats the problem?

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could someone please explain to me why the bank doesnt want to give us a loan. we have a mortgage already, the thing is we owe 48000 on the mortgage, we want to tear down our old house and take out another 80000 to rebuild, so we would combine the old with the new. our credit is good,no bad debt, payments on time. i dont understand what the problem is. advice please!

  1. Reply
    May 4, 2011 at 12:25 am

    Normally the problem is that you are tearing down the asset that backs up their mortgage. If something happens and the new asset is never rebuilt then they are out in the cold.

    Second problem may be that the new asset may not be of a high enough value to justify the new larger mortgage.

  2. Reply
    Janet P
    May 4, 2011 at 12:47 am

    It could be lack of income or lack of equity. You need to have either equity of about 40k or make a down payment in that amount in order to qualify for a contruction loan.

  3. Reply
    May 4, 2011 at 1:23 am

    A) You’re tearing down their collateral. If you default on that mortgage, then the bank still has a house to sell. If you’re tearing it down, then default before you rebuild it, then the bank wouldn’t have anything to re-coop any money on their loss.

    B) That’s probably the primary reason, but you also have to remember that a lot of times, people over-build for where they live. In other words, if you and all of your neighbors live in $ 200,000 houses, but you then put another $ 200,000 into your house before you sell it, you’re not going to get the $ 400,000 that you put into it. You probably won’t even get $ 300,000. I doubt that’s the main reason, but it could be their backup reason to “A”.

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