Wednesday, April 17, 2013

Construction Loans May Be Your Best Option in 2013

How to Finance a Major Remodel Using a Construction Loan

In the real estate boom years of 2000 - 2007, many homeowners and investors were pouring money into existing homes and residential investment properties.  In some cases this might have been a refresh costing $25,000 to $100,000.  In other cases owners were adding rooms, 2nd floors, and even creating mini-mansions.  There were plenty of lenders happy to provide 2nd trust deeds, total refinance packages, or home equity loans (HELOCS) for these types of construction projects.

Things have changed.  Now there aren't very many lenders offering them, but they do exist.  I do them now with increasing frequency.

For instance, a home equity line of credit works this way.  Banks will give you a second loan on top of your first loan, particularly if you're using that money to fix up the home.  They will do this because you are improving the home, which improves the value, and that's increasing the collateral, which is what the banks is lending against.

Construction Loans Are a Great Way to Finance a Major Remodel

But in today’s market, it is sometimes hard to find banks that will lend you money against some future value of the home.  The other way to approach this is a construction loan.  Construction loans are great.  Here’s how they work.  Lenders doing construction loans appreciate that when you do a major remodel the property is going to be worth more when it's finished.  The banks are looking for something you rarely hear in this market any more... future value.  They will lend against some future value.  They will provide the money for all the construction.

One of the great benefits to a construction loan is that during the construction period the bank will typically lend at a rate lower than your lowest 30 year fixed.  The loan repayment during construction is an interest only payment, so your payment is actually probably going to be substantially less than your current mortgage payment on a smaller loan.

After the construction period the banks are happy if you want to refinance, but most often you don't even have to refinance.  The loan can be set up to automatically roll over into an ARM or into a fixed rate mortgage, and you carry on.   It's a great deal, and a few banks are doing it. They're not for everybody, but I recommend them.

New Contact Information for Bill Rayman

Bill Rayman Home Mortgage

12121 Wilshire Blvd
Suite 350
LA CA 90025


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