Archive for February, 2017

If you’re having trouble finding that perfect vacation home…this may be your answer!

February 24th, 2017
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2.24 blog pic“Can I use construction or construction renovation financing for a second home?” The answer is “Yes, You Can!” Purchasing and renovating a second home (vacation home), or renovating the existing one, can still be as easy as 1-2-3.

Minnesota and Wisconsin have so many wonderful locations on lakes or in the woods for a family to have a second home for vacation getaways. Finding that perfect vacation home for the family may not always be possible, so having access to money to improve it makes all the difference. A purchase-renovation loan combines the purchase of the home with the work that needs to be done. At closing, the home is purchased and an escrow account is set up for the renovations. Your investment will be the minimum 10% down for a second home purchase, plus the costs for the loan. We will give you the benefit of any built-in equity as well – the appraised value of the as completed project could give you that bump in value that increases your equity position and reduces the cash you will need.

For the existing second home that needs some work, we look at it a little differently. Since you already own the property, I will need to have the details of repairs and improvements being considered so the appraisal can be done to show the value of the completed project. We do look for your equity position to be stronger in this scenario, as the loan to value for this product is 80%. Lake property values continue to remain strong, and renovations that update or expand the living space can give you a strong return on investment. Read the rest of this entry »

February 17th, 2017
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rural home construction“I live outside of the metropolitan area in rural Minnesota. How do I get access to construction financing to build a new home or renovate my existing home? No one in my area offers this type of financing.” This is an example of a question I hear often. You don’t need to live in the city to have access to products that allow you to build or renovate.

Rural or out-state properties do present additional challenges because of their location – my job is to determine how I can help. When a client calls from outside the metro area, I need to gather more information than normal simply due to the location. The issues that most commonly arise are lack of comparable properties, lack of appraisal coverage, and sometimes the type of property.

Many rural properties have hobby farm characteristics. These do not create much of an issue if we find other hobby farm type properties around the area. Large acreage that has tillable ground, with numerous out buildings that make it look farm-like rather than hobby farm-like might create a challenge. I always look for the highest and best use, along with how the property is listed on tax records. Read the rest of this entry »

Make sure your housing payment comfortably fits your budget…

February 10th, 2017
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Home Mortgage Affordability, A Gray House, Brown Card And Calculator On Stone BackgroundHow much are you comfortable paying in a monthly mortgage payment? A question I ask with every loan consultation I have. It’s surprising how often I’ve heard, “I’m not sure if I’ve even thought about it,” and sometimes couples can’t always agree on it. Either way, it reminds me how vital the question is to ask!

I do get great answers too. Clients who are financially savvy know their numbers. They’ve analyzed their budgets with income they earn and expenses they’ve paid, they know how much they have to spend on entertainment and put away for retirement – they have it together! But for many it still comes down answering, “What are you COMFORTABLE paying in a monthly mortgage payment?”

All in – the total monthly payment is labeled PITI. This stands for principal, interest, taxes, and insurance. Sometimes you may see PITIA because association managed properties usually have a monthly fee to maintain common areas. The monthly payment you make is to pay back your loan amount with interest (P&I – Principal & Interest), escrowed amounts for real estate taxes (T) and insurance (I), which can include home owner’s insurance (a/k/a hazard insurance), and mortgage insurance if applicable. Association fees (A) are paid outside of the mortgage payment, directly to the association if you have one. Read the rest of this entry »

How much down payment do I need for a construction loan?

February 3rd, 2017
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A grPlanning monthly House construction loan Finance concepteat question ,and I get this nearly every day from clients. The down payment needed for the construction loan depends on the type of end loan financing that will be placed – conforming or non-conforming.  We always start with the end in mind, the loan that will be placed when construction is completed, and structure the construction loan with that in mind.

Let’s talk about the differences between conforming conventional loans and non-conforming, or jumbo, products. The conforming loan limit in our area is $424,100, so ifyou keep your mortgage balance at or under this number, the conforming rules apply. If your mortgage balance exceeds $424,101, then the non-conforming rules apply.

Conforming conventional loans can be done with as little as 5% down. We translate that to the construction loan, where the client can invest 5%. In this instance, since our construction lending banks like to keep their exposure to a max of 80%, we would hold back 15% from the builder during the construction process to keep the bank happy. This also reduces carrying costs for the consumer, as interest-only payments are charged only on the funds that have been drawn from the construction line.

Non-conforming, or jumbo, mortgage loans need a minimum of 20% down; but we can, in some cases, use a conforming first mortgage along with a second mortgage to decrease the client’s investment to 10%. We look at each scenario separately to determine the best outcome for the client.

If a lot is purchased first, the client already has equity in the transaction through the down payment given at the time of the lot purchase. That down payment counts in the total cash needed for the project, and only the balance is due at the time the construction loan closes.

Don’t get bogged down with all the details. My team deals with these loans daily and can help you structure the loan that works best for you. Just give us a call and we will show you how construction financing is as easy as 1-2-3.

– Randy Cullen, NMLS# 326128