Home Renovation Finance


The Real Estate And Mortgage Section management takes great pleasure in bringing to you, our readers, this informative article by Arthur Aranda. Mr. Aranda is a highly respected Home Construction & Renovation Mortgage Specialist who possesses a wealth of information about, and extensive knowledge in, residential New Construction mortgage loans, with special emphasis on Construction to Permanent loans. Please join us in welcoming Mr. Aranda by reading his first REAMS post. Thanks! Here is the article:

 

Home Renovation Finance

Homeowners can finance their renovation projects based on the appraised value of their homes, after the renovation is completed. In some cases, personal funds may not be needed for the construction costs. This unique feature of a “one-time-close” Construction to Permanent mortgage leverages the home’s future equity created by a major renovation or gut rehab construction project.

Here’s a brief overview of how it works. Let’s say the current appraised home value is $300,000 with a $200,000 mortgage balance. The homeowner plans a major home renovation with a $200,000 budget. A home equity loan would generally only provide $70,000 which is 90 per cent of the $300,000 appraised value minus the $200,000 mortgage.

If the appraised home value – after renovation – is $500,000, they may be able to qualify for a $400,000 Construction to Permanent mortgage which is 80 per cent of the home’s future appraised value. At loan closing the first draw would pay off their $200,000 mortgage balance, leaving $200,000 available for the construction. When construction work is completed the $400,000 loan converts to a permanent fixed rate mortgage at a rate that was set months earlier at time of application.

There’s a caveat however. The future appraised home value must cover construction costs, plus any existing mortgages; but this doesn’t always happen because a renovated home value may not appraise for the amount needed ($500,000) to cover the new mortgage, so the homeowner would need to use some of his/her personal funds.

Even when the entire construction budget can be financed based on the future appraised value, personal funds would still be needed to cover closing costs and typically, five per cent of the construction budget must be set aside as reserves to cover cost overruns. The lender will provide a Good Faith Estimate of closing costs and calculate reserve requirements so that the borrower will be prepared upfront for how much of their personal funds will be needed.

Each Construction to Permanent mortgage is structured to meet the needs of a homeowner’s specific renovation project. The lender will review a borrower’s income and overall financial condition to determine the qualifying loan amount. Generally a credit score of 680 or better is required; and for larger loan amounts a higher credit score may be needed.

Homeowner interested in this type of financing should talk to a construction lender early on in order to understand the process from application to funding, and to determine what documents will be needed for an expedient loan approval. They should also have some idea of what their home will be worth after the renovation. A good starting point for checking home values is a Zillow home price estimate (Zestimate). Currently, the national accuracy of a Zestimate is about 8 percent of the final sales price of a home.

Homeowners can also talk to real estate professionals, either agents or appraisers, who know the market in more details and can provide advise on how major home improvements will affect value. An independent real estate appraiser hired by the lender will review construction plans to determine the home value after renovation is completed.

A major home renovation project can be a complex process; but a one-time close Construction to Permanent mortgage can help make the financing simple and more affordable. Homeowners can focus on their home renovation with peace of mind; knowing that both the construction financing and the permanent mortgage are approved, the rate is set and the details of financing each stage from start to finish has been worked out ahead of time.

By Arthur Aranda



Contact Arthur
LinkedIn.com/in/arthuranda
201-741-1537 talk/text
Prospect Street Leonia, New Jersey 07605

Real Estate and Mortgage Viewpoints In Retrospect


This first article titled, In Philadelphia, a Chance to Stave Off Foreclosure is published to the NYTimes.com website.

My commentary: The article provides an insightful description of a necessary and timely housing program provided by the city of Philadelphia to that city’s homeowners. It is a program which should serve as a model to every municipality in the country. Housing and mortgage professionals should find the article very informative. Take a look!

This second article titled, Back to Business – Investment Funds Profit Again, This Time By Paring Mortgages is published to the NYTimes.com website. it sheds light on the mortgage crises of 2007. View the entire article here!

My commentary: Way to go Wall Street! When you read this article you will probably be as surprise as I was. I have been pretty down on Wall Street for the last couple of years for a variety of reasons, not the least of which is the mortgage crises, but here is a Wall Street idea that is actually creating benefits for homeowners (Main Street). If you promote affordable financing for homeowners as I do, you will enjoy this article. Take a look for yourself at the above link!

Article number 3 is titled, An Upturn in the Housing Market May Be Reversing, is published on the NYTimes.com website.

My commentary: At first I thought all the housing market news was going to be negative, but as I continued reading that turned out not to be the case. It’s kind of a mixed bag: One index shows housing prices rising just a fraction, another forecasting a decline of as much as 10 percent, while yet another has prices flat for September. Read more!

Article number 5 is titled, Bigwigs Debate ‘Too Big to Fail’ and is published to the Seeking Alpha website.

My commentary: Some workout programs have not been working out, and it may be necessary for the federal government to take a second look at the Home Affordable program. This is a fascinating article which gives the reader a brief insight into what is really taking place behind the scenes at mortgage servicers/holders across the country. Was it ever the intention of these banks and mortgage holders to implement the program as the government intended? You be the judge!

Article number 4 is titled, Treasury to Pressure Mortgage Companies to Cut Payments, is published to the NYTimes.com website.

My commentary: As one who believes in, and writes about affordable housing at every opportunity, I certainly can’t fathom the TBTF concept. There are many who believe that our government is too big as it exists, and yet here we are debating whether certain institutions (not of the government) ought to be permitted – actually enabled – to continue operating on such a scale that their failure spells doom for the rest of us.

‘TBTF’ just doesn’t seem a reasonable or acceptable societal structure under which to live, so I’m anti-TBTF and I hope those we elect to address these matters share these sentiments. The above article, authored by Carolyn Austin, is very thought-provoking and, to her credit, she has opened what I believe to be one of the more profound discussions of our time. Take a look!

Article number 6 is titled, Official Google Blog: RT @google: Tweets and updates and search is published to the Google blog.

My commentary: What an appropriate statement. There is certainly a lot happening on the social networking scene, and when you add search to it, my sentiments are exactly those on the above article. Take a look!

Thank you for your support. We will continue working to provide the most relevant and useful information about current FHA-insured programs and related topics. God Bless!

An Ideal Time to Sell Your Home Might Be Now

Houses Bought As-Is for ALL CASH! Fast Closings!

If you are a home owner who contemplated selling your home, but were apprehensive, unsure or even tentative because market conditions were still not reflective of the promising signs you had expected; then now may be the time for you to take another, closer look at the real estate market.

First you will notice that the Conventional 30-Year fixed rate mortgage (FRM) at the time of this writing is 4.09% (FHA: 3.75%) which is closer to the 52-week low of 3.94% (FHA: 3.50%) than the 52-week high 4.85% (FHA: 4.60%) and therefore is more favorable for attracting more buyers.

You will be pleased to learn also that home prices – according to leading analysts – rose higher in February and March of this year, but more importantly, property values “…rose 13.1 percent compared to February 2013…” and were “…up 12.9 percent on an annual basis….” according to a Mortgage News Daily article titled, ‘Price Increases Slow in Latest Case Shiller Report,’ in which the home pricing index reports were relied upon.

And this from an article published to CNBC’s website: “Year over year, the index jumped 12.4 percent, S&P/Case-Shiller said, a slightly slower rate than February’s 12.9 percent surge but well above Wall Street’s estimates.”

What this means is the rise in property values even exceeded what the Wall street experts had predicted, and when the market out-performs analysts and experts, it might be time to approach the matter of selling in a more serious way.

However, this is not to suggest that you rely solely on what is being said here, as it is always important to do your own research and market watch in a more consistent and diligent manner using the above data as more of a starting point than a marketing plan. Another factor which must be taken into consideration is what can only be thought of as “pent-up” demand of your buying market after such a long cold winter.

Pent-up demand is a term often used by real estate professionals to describe a condition that exists in the marketplace.

It is a condition which can be described as previously restrained home buyers now eager, and maybe overly anxious, to buy a home thereby satisfying a previously overwhelming desire to acquire the home they have long coveted but were unable to, because of an existing condition that prevented them; albeit a condition they had no control to stop or to change, such a phenomenon which in this case was the weather.

The long, cold winter to which I refer is known as the polar vortex which crippled a large swath of the country, with the northeast having been hit hardest, thereby rendering any home buying activity almost non-existent.

Other factors that strengthen this current demand is the consistently low interest rates already mentioned, the sustained appreciation in property values evidenced by market data and analysis and “double-digit price increases” seen in many of the country’s metro areas over the past year supported by “home price index reports” mentioned above, as well as the ever decreasing supply of available homes for sale.

This decreasing supply of homes can be attributed to a phenomenon that has its origins in a statement made by the highly regarded and respected investor, Warren Buffett, who holds the multiple positions of chairman, president, and CEO of Berkshire Hathaway, a company he started some fifty years ago.

Candace Taylor, in her article ‘Hedge funds try to turn a profit, one home at a time’ quoted Mr. Buffett as saying that he would ‘buy up “a couple hundred thousand” single family homes if it were practical.’

Based on Mr. Buffett’s immense influence in the investment community, this statement – as with most other statements he makes – has had a tremendous influence on other investors, and was enough to create a single family home buying frenzy “so intense that distressed homes in [a number of] areas have grown scarce, driving up prices and forcing investors to expand into other markets.” Types of investors participating, and the markets in which they were first active as described by Ms. Taylor are captured in the following passage from that article:

REITs, hedge funds and private equity players have competed to buy thousands of foreclosed houses in states like California, Nevada and Arizona — where the downturn left thousands of homes available for pennies on the dollar — renting them out to yield handsome returns.

So yes, now might be as good a time as any – since the pre-recession days of last decade – to sell your home; and this time of the year when the weather is increasingly more pleasant, and potential home buyers who were almost to the point of hibernation in their places of residence due to the harsh winter weather, are more actively looking to buy that home they have wanted for such a long time, is ideal for putting your house on the market.

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