Recently a friend of mine called me and said that he needed a construction loan to remodel his house in Burlingame, CA. I asked him if he had a construction contract and plans. He said not only did he have those items, he had already started construction!
I asked him why he was calling me now, didn't he already have a construction loan in place? He said no - he was approved for an equity line of credit, but when the lender found out that construction had already started, they could not fund the loan.
I told him I would do my best to find him a construction loan, but I could not guarantee anything. Lenders usually do not like to approve a construction loan application after the project has started.
After making several phone calls, I found a bank that was interested in funding this construction loan. Luckily, my client was financially qualified, and very organized with his paperwork. We got the loan approved, and it recently closed escrow!
There are several lessons homeowners should know that my client learned from going through this process to obtain a construction loan.
Before starting construction, a homeowner should make sure he has the financing of the project approved. It could be a construction loan, a line of credit, a margin loan, etc. No matter what type of financing it is - have it nailed down. Having financing in place not only makes sure the homeowner can finance the project, but also will save the homeowner from a lot of paperwork headaches and stress!
Another tip when obtaining a construction loan is to alert your contractor that he will need to supply documentation to the lender. This documentation usually is made up of a resume, list of completed projects, insurance, and financial statements.
Regarding financial statements of the contractor, it is a good idea to find out the amount of working capital your contractor has. In many cases suppliers will ask to be paid prior to the bank supplying funds from the construction loan. If the contractor does not have enough working capital to fund the suppliers, they may place a mechanics lien on the project. A homeowner may want to consider writing into their construction contract the ability to pay a supplier or sub-contractor directly if the contractor is unable to. This ability can help avoid an issue with a mechanics lien.
If for some reason construction has commenced prior to obtaining a construction loan, make sure that you keep copies of all receipts and cancelled checks. The construction loan lender will want to see these.
Finally, make sure you understand all the terms of the construction loan. The key points to know are:
Are you interested in mortgage refinancing in Burlingame CA? I have great news! Mortgage refinancing can now be customized to closely match the term of your current mortgage.
You may not want a mortgage refinancing because you are thinking "Oh great, I have been paying on my 30 year mortgage for three years, now I am going to start over with a new 30 year mortgage!" You don't want to start over. You don't want to turn back the clock.
Here is the new mortgage refinancing solution for this problem: customized loan terms. Let's look at an example.
Suppose you have paid on your 30 year mortgage for three years, as above. You notice that interest rates are less than what you are paying on your current mortgage, so you are contemplating a mortgage refinancing. Instead of obtaining a 30 year mortgage, you are now able to customize the terms to a 27 year mortgage!
By customizing the terms with your mortgage refinancing, you do not have to turn back the clock! You can stay on the same amortization schedule to get your mortgage paid off.
The rates for this type of mortgage refinancing are determined by rounding up to the nearest published amortization term. In this example, the rates for a 30 year mortgage would be used for a 27 year mortgage.
Suppose you are 53 years old, and you would like to retire at age 65. You could apply for a 12 year mortgage refinancing to have your home paid off at the time of retirement. In this example, rates for a 15 year mortgage would be used because this term is the closest higher amortization term.
Customized mortgage terms are available with amortizations from 10 years to 29 years. Conforming loans and agency jumbo loans (loan amounts up to $729,750 for single family residences in certain counties) are available for customized mortgage refinancing solutions. Properties can be located not only in Burlingame Ca, but also in all parts of California.
Would you like to calculate your customized mortgage payment? Look over to the right under my picture and figure out what your payment will be with a mortgage refinancing.
Do you want to find out the current rates? Contact Me
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The OLA Fun Faire takes place this weekend. The theme this year is Ireland By The Bay. The times are Friday September 18th from 6 to 10, and Saturday September 19th from 2 to 10.
There are all kinds of fun activities for all ages. For the kids, there are rides, rock climbing, and bunjee jumping. In addition, there are all kinds of game booths for the kids to enjoy.
For the parents, there will be a silent auction, a tasty Irish dinner, and plenty of beverages to keep you cool during what should be a very warm weekend.
I hope to see you at the OLA Fun Faire this weekend!
Fannie Mae has come out with new cash reserve requirements, and I see a conflict. On the one hand, you have the $8000 tax credit for first time home buyers. On the other hand, you have new guidelines released recently by Fannie Mae that is a credit tightening maneuver.
On every transaction that is sold to Fannie Mae, there are a certain number of months of cash reserves required, made up of the sum of a homeowner's principal, interest, taxes, and insurance (PITI). The cash reserve requirements are generally between two months and six months of PITI.
Fannie Mae has not changed the number of months cash reserves required, but they have changed how cash reserves are calculated.
Cash in checking and savings accounts have had no change. Fannie Mae will count 100% of the verified funds in checking and savings accounts as cash reserves.
The value of stocks, bonds, and mutual funds used to be counted at 100% of the verified value. Here is the big change: only 70% of the value will be counted.
The other change they have made is with the calculation of cash reserves held in a retirement account. Fannie Mae used to count 70% of the value in a retirement account - the percentage now being employed is 60%.
Here are some consequences I see with these changes. First, if a homebuyer is short on cash reserves because of the new requirements, he may have to ask for a gift from a family member to close escrow to satisfy the reserve requirements.
Second, the buyer may have to liquidate their investment portfolio for the down payment instead of using savings in order to satisfy the cash reserves requirement. I am going to assume Fannie Mae will count 100% of an investment portfolio's value if it is used for the down payment - I could be wrong, it is too early to tell.
Finally, there is going to be some "messiness" in terms of the value of investments. Is it going to be the value at the time of loan origination, or the value at the time of underwriting? Either way, homeowners and home buyers are going to have to time their transaction with more care because of the stricter cash reserve requirements.
Those are the consequences I see. The other question I have is who is the government really trying to help? It seems to me that they are trying to strengthen credit quality, but if less people can qualify, what does that do to property values? Aren't property values part of credit quality? There is no question that cash reserves are a strong factor in a borrower's ability to pay. However, if you tighten credit requirements, less people can buy, and demand weakens. Is this going to be an unintended consequence?
There are going to be 24 open houses in Hillsborough CA on the weekend of September 12th and 13th. Here is a list of these open houses (source mlslistings.com):
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I am a mortgage broker who has been originating since 1985. I specialize in jumbo mortgage loans, commercial, and construction loans in California. Cash out and stated income loans are available.
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