REAMS, acronym for real estate and mortgage section is the alternate name of this website and will describe topics common to both real estate and mortgages.

How Does a Construction to Permanent Mortgage Work?


  • A Construction-to-Permanent “one time close” mortgage loan involves only one application and one closing that covers both the construction phase and the permanent mortgage and has one rate set for both.
  • The construction phase of the loan has interest-only payments. The bank will set up a disbursement schedule which are the payments made to your builder as the work gets completed.
  • An initial loan disbursement is made at closing if you are also purchasing the property (land or a knock-down) on which to build.
  • If you have a loan on the property that you’re building on, the first disbursement of the construction loan will pay-off that loan before construction starts.
  • When the construction phase is complete the construction loan converts over to a permanent fixed-rate mortgage.



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

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

How to Cut Back on Mortgage Expenses

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

Market volatility is unpredictable

Situation at the real estate market is changeable and it cannot be predicted whether interest rates are going to go up or down. Unfortunately people often get in mortgage challenges because of rate increases and find themselves at the risk of foreclosure. Millions of families struggle with volatile economic circumstances in order to get homes and to preserve their property.

The following paragraphs provides some information which you may find helpful in avoiding challenges connected with your house, as well as to minimize mortgage related costs.

Consider covering mortgage interest as a priority

It doesn’t matter whether people sign deals with a mortgage broker or any other lender, paying off the loan as early as possible should become the top priority. The faster you get free from contract terms the less a risk you will take to be damaged by unpredictable economic circumstances. But the situation is a little different for high and low interest loans.

For example, when you use the services of online cash advance lenders you will likely get a high interest rate and it will be evenly spread out (amortized) over the life of your loan in even monthly payments. That means that the faster you cover the loan, the less interest you will pay. This works only in the beginning of the loan term when we’re discussing a mortgage.

Payments are organized so that you return most of the interest in the early years after which the principal is reduced with a smaller amount going to interest payments. So when you decide to buy a home make all your efforts to repay the amount of interest as soon as you possibly can thereby insuring that subsequent payments will not be a burden on your budget in times of economic instability.

 

Consolidate your loan

There is a great program provided by the government which is called HARP. You have a unique chance to get more beneficial terms and record low interest rates in cases of mortgage refinancing. This program is provided for millions of families who may be in need of relief. But it is also true that not many people use such a perfect opportunity to save their money.

It doesn’t matter whether they are improperly informed about the HARP or just treat it lightly because they think that it is too good to be true. What does matter is the unique opportunity this program provides for those who are experiencing problems with their mortgage. The program has been extended and homeowners will have an opportunity to avail themselves of it until 2015. So take your chance and ease your life, if you are among those who could use this valuable program.

Choose the most relevant solution

Being a homeowner is a dream of many Americans but it is time to think about whether or not it is worth the struggle, sacrifice and stress home ownership places on your family’s well being. Prices are constantly increasing in the real estate market and that means that mortgages are also getting more and more expensive.

Of course once you’ve become a homeowner you will be able to sell that property at some later date for a higher price; but it is important to estimate time frames objectively. Half of your life you will pay off the huge amount of the mortgage and the pleasure of owning a house will not be so bright when you become a pensioner and realize what a big responsibility it is to own a house.

That is why sometimes it can sometimes be better to rent an apartment which can be surrendered rather quickly, and without too many problems, when crises arise. Whether an individual purchases a home or rents and apartment really depends on his/her lifestyle, which is often the ultimate determining factor in such decisions.