Yes, we know right now it is more challenging then ever to get high end custom home construction loan done. Banks pulling back and depreciating home values make for an upfront challenge but once it is determined that you can qualify you need to have a loan officer that knows what he/she is doing. It boggles my mind the level of imcompetency in the market. With the recent attrition of mortgage companies and loan officers one would think the ones still in business would be conducting business at a high level. But what I hear from banks and borrowers is that is not the case. Some of the most basic mistakes are happening and can kill your deal. You may be the the most qualified borrower on the planet but if there is a mistake made underwriters are no longer looking the other way or letting something slide. If they detect the slightest inconsistency, at minimum the loan gets declined. At worst, they report the loan officer for fraud to state banking. I understand no one is perfect but in the current market you get one shot to get it right.
How can you avoid these pitfalls? Make sure you know who you are dealing with. Ask for references from past clients. Shop around. See who else is doing construction loans. There are still plenty of banks and brokers capable of getting qualified buyers loans closed. Meet in person with prospective lenders to get a feel for who they are and what they are. Your "gut feeling" is subjective but still a valuable evaluation tool. Pay attention to questions they ask. Most will be to fill out the application but others are to get their arms around the big picture. Do they talk like they know construction loans? Some loan officers are very desperate and will fudge the truth about their expertise. Review the application once completed for accuracy. Make sure your income is accurate. Is your employer or source(s) of income listed? Are your accounts where funds will be verified correct? These are very basic but accuracy is critical.
Now more than ever is the time to protect yourself. Do yourself a favor and be diligent on the front end of the process to give yourself the best chance for an approval.
Please contact me with any questions.
Brad Brown
7575 E Redfield Rd Suite 235
Scottsdale, AZ 85260
480-305-8900 Ext 307- office
480-393-8801 - fax
bradbrown@communityfirstfinancial.com
http://www.communityfirstfinancial.com/
http://www.scottsdaleconstructionloans.com/
Monday, July 14, 2008
Thursday, March 20, 2008
Time to purchase a lot.
Purchasing a lot- It's a great time to buy if you can afford it. (edit/delete)
Things have changed dramatically in the last eight to ten months when it comes to acquiring a lot, especially in Maricopa County. Banks are pulling back nearly daily on loan to value guidelines, increasing reserve requirements and raising credit score minimums. The days of buying a lot sitting on it for a few years and selling for a nice profit is over. Lenders want buyers to invest deeply and someday, within two -three years, build a primary residence.
Minimum down-payment is now 25%, with some banks as step as 40%. This is due to declining values and the number of lot loans going bad. Nearly all banks are requiring five percent more down across the board on loans in Maricopa County. Banks are seeing more and more land coming back to them and are taking steps to insure future loans do not. Why are loans going bad? People overpaid and held on too long. They cannot sell the land without having to pay money to close a loan. Most people do not have money laying around to pay to SELL their property.
Full document loans still exist. Stated income still exist, however, I prefer to call them asset based stated income. If you are going state your income you better state a reasonable income and be ready to back that up with six months of your stated income in reserves, as well as, having your down-payment liquid.
Now the good news. There are many motivated sellers in the market. You can find good deals out there. Do your diligence and work with a Realtor that specializes in the area where you are looking and contact banks that are known for lending on land and inquire about lots they have available. I have seen lot purchases that are 25% less than what you would have paid six months ago.
It is a challenging market but with the right plan and with some resources you can still get a great piece of land.
Brad Brown
Construction Loan Specialists
Scottsdale & Paradise Valley
Home
Loans
Loan Process
Contact Us
7575 E Redfield Rd Suite 235
Scottsdale, AZ 85260
480-305-8900 Ext 307- office
480-393-8801 - fax
bradbrown@communityfirstfinancial.com
http://www.communityfirstfinancial.com/
http://www.scottsdaleconstructionloans.com/
Things have changed dramatically in the last eight to ten months when it comes to acquiring a lot, especially in Maricopa County. Banks are pulling back nearly daily on loan to value guidelines, increasing reserve requirements and raising credit score minimums. The days of buying a lot sitting on it for a few years and selling for a nice profit is over. Lenders want buyers to invest deeply and someday, within two -three years, build a primary residence.
Minimum down-payment is now 25%, with some banks as step as 40%. This is due to declining values and the number of lot loans going bad. Nearly all banks are requiring five percent more down across the board on loans in Maricopa County. Banks are seeing more and more land coming back to them and are taking steps to insure future loans do not. Why are loans going bad? People overpaid and held on too long. They cannot sell the land without having to pay money to close a loan. Most people do not have money laying around to pay to SELL their property.
Full document loans still exist. Stated income still exist, however, I prefer to call them asset based stated income. If you are going state your income you better state a reasonable income and be ready to back that up with six months of your stated income in reserves, as well as, having your down-payment liquid.
Now the good news. There are many motivated sellers in the market. You can find good deals out there. Do your diligence and work with a Realtor that specializes in the area where you are looking and contact banks that are known for lending on land and inquire about lots they have available. I have seen lot purchases that are 25% less than what you would have paid six months ago.
It is a challenging market but with the right plan and with some resources you can still get a great piece of land.
Brad Brown
Construction Loan Specialists
Scottsdale & Paradise Valley
Home
Loans
Loan Process
Contact Us
7575 E Redfield Rd Suite 235
Scottsdale, AZ 85260
480-305-8900 Ext 307- office
480-393-8801 - fax
bradbrown@communityfirstfinancial.com
http://www.communityfirstfinancial.com/
http://www.scottsdaleconstructionloans.com/
Required Investment in a construction loan.
Required Investment into a construction loan- "Skin in the game" (edit/delete) Maricopa County, the largest county in Arizona and one of the largest county in the USA, had over 22,000 building permits issued in 2007. This estimate is provided to me by Construction Monitor, LLC. With in this 22,000 there were some quite large home built and many of them still being built. The ultra luxury home that is 10,000+ square feet can take 2 or more years.
Now here is a question that I received today; What is the largest construction loan I can do? My answer is pretty simple: there is no limit. If you want to build a $20 million mansion I can finance it. My question to you is do you have $10 million dollars to put down and can you document income enough to support such a payment. This illustration is a inflated to make a point, it is not the dollar amount that is in question, but how much money do you have to put in the project.
Simple rule in construction loans: the higher the loan amount the more money an individual needs to invest in the project.
I wish I could just write out a simple formula about how much money is needed, but because construction loans are so unique and have variables like lot equity, sweat equity (owner builders), cross collateralization and so on. It is very difficult to group everyone together.
If anyone ever has a client that needs some guidance, email (brad@cffinfo.com) me the answer to these questions and I can tell you what money they need invested into the project. In the construction industry we call this "skin in the game".
Do you own the lot?
If so, when did you buy?
What is the lot balance?
What is the lot value now?
What are the construction costs?
What is your completed appraised value?
What is your estimated credit score?
Can we fully document your income or do you need stated income loan?
With this information I can create a starting point as to loan type and capital required to close your construction loan.
Brad Brown
Construction Loan Specialists
Scottsdale & Paradise Valley
Home
Loans
Loan Process
Contact Us
7575 E Redfield Rd Suite 235
Scottsdale, AZ 85260
480-305-8900 Ext 307- office
480-393-8801 - fax
bradbrown@communityfirstfinancial.com
http://www.communityfirstfinancial.com/
http://www.scottsdaleconstructionloans.com/
Now here is a question that I received today; What is the largest construction loan I can do? My answer is pretty simple: there is no limit. If you want to build a $20 million mansion I can finance it. My question to you is do you have $10 million dollars to put down and can you document income enough to support such a payment. This illustration is a inflated to make a point, it is not the dollar amount that is in question, but how much money do you have to put in the project.
Simple rule in construction loans: the higher the loan amount the more money an individual needs to invest in the project.
I wish I could just write out a simple formula about how much money is needed, but because construction loans are so unique and have variables like lot equity, sweat equity (owner builders), cross collateralization and so on. It is very difficult to group everyone together.
If anyone ever has a client that needs some guidance, email (brad@cffinfo.com) me the answer to these questions and I can tell you what money they need invested into the project. In the construction industry we call this "skin in the game".
Do you own the lot?
If so, when did you buy?
What is the lot balance?
What is the lot value now?
What are the construction costs?
What is your completed appraised value?
What is your estimated credit score?
Can we fully document your income or do you need stated income loan?
With this information I can create a starting point as to loan type and capital required to close your construction loan.
Brad Brown
Construction Loan Specialists
Scottsdale & Paradise Valley
Home
Loans
Loan Process
Contact Us
7575 E Redfield Rd Suite 235
Scottsdale, AZ 85260
480-305-8900 Ext 307- office
480-393-8801 - fax
bradbrown@communityfirstfinancial.com
http://www.communityfirstfinancial.com/
http://www.scottsdaleconstructionloans.com/
Thursday, January 31, 2008
What I do.
Great Features in one easy loan make your custom homes easy to finance.
All-inclusive cost basis
Some lenders exclude costs, such
as building permit fees, inspection
fees and construction-related
closing costs when determining
the maximum amount they will
lend you. This could cause you to pay for these costs
out-of-pocket. But our Easy Custom Home Loan
includes all the customary costs-even estimated
interest payments during the construction phase-in the
cost basis. So most, if not all, of your cash requirements
are in your down payment.
Extended construction period
Some lenders mandate short construction periods,
sometimes six months or less. And, while this may be
plenty of time to build your home, what if unavoidable
weather or material delays occur? You could be stuck
with unexpected and unbudgeted loan extension fees.
We approve extended construction periods that
virtually eliminate these concerns.
Flexible draw schedules
Unlike lenders who dictate your home's construction
schedule by defining the work that must be completed
before each draw is issued, our Easy Custom Home
Loan assigns a percentage of the overall project cost to
each major element. This allows your builder the
flexibility to determine the most efficient building
sequence for your new home.
Contingency reserves for unexpected changes
Cost overruns are a fact of life in construction projects.
Option selections change or you may decide to make
changes after the project is underway. With our Easy
Custom Home Loan, we'll establish a reserve account to
cover these changes so you'll never need to worry about
funding unexpected costs out-of-pocket.
Unparalleled service
Building a custom home is an exciting opportunity to
have the home you've always wanted, in every detail.
That's why we offer the Easy Custom Home Loan. We'll
work with you and your builder, every step of the way,
to ensure that the home building process goes smoothly
and efficiently
Areas of Expertise
I specialize in construction loans and financing. The area that I spend most of my time is in Scottsdale, Arizona. I work with a number of builders, general contractors, developers and Realtors in the Scottsdale Area. I was born and raised in Scottsdale and I have a passion for construction and real estate in the area.
My Niche:
High End Luxury Construction Loans
Scottsdale and Paradise Valley Areas
Multi Million Dollar Construction Loans
Scratch Golfer
Other Interests:
Home Loan and Construction Loan Education
Primary Home Purchase/Refinance
Investment Properties
Construction Loans
Spec Financing
Lot/Land Loans
Construction Residential/Rehab
Spec Refinance
Community First Financial understands the entire process of buying real estate. We have properly aligned our company with indivduals in the real estate market place to deliver more than just great rates and great service. It is our goal to help build your wealth through real estate education and investment opportunities.
Brad Brown
Community First Financial
480-305-8900 ex 307
All-inclusive cost basis
Some lenders exclude costs, such
as building permit fees, inspection
fees and construction-related
closing costs when determining
the maximum amount they will
lend you. This could cause you to pay for these costs
out-of-pocket. But our Easy Custom Home Loan
includes all the customary costs-even estimated
interest payments during the construction phase-in the
cost basis. So most, if not all, of your cash requirements
are in your down payment.
Extended construction period
Some lenders mandate short construction periods,
sometimes six months or less. And, while this may be
plenty of time to build your home, what if unavoidable
weather or material delays occur? You could be stuck
with unexpected and unbudgeted loan extension fees.
We approve extended construction periods that
virtually eliminate these concerns.
Flexible draw schedules
Unlike lenders who dictate your home's construction
schedule by defining the work that must be completed
before each draw is issued, our Easy Custom Home
Loan assigns a percentage of the overall project cost to
each major element. This allows your builder the
flexibility to determine the most efficient building
sequence for your new home.
Contingency reserves for unexpected changes
Cost overruns are a fact of life in construction projects.
Option selections change or you may decide to make
changes after the project is underway. With our Easy
Custom Home Loan, we'll establish a reserve account to
cover these changes so you'll never need to worry about
funding unexpected costs out-of-pocket.
Unparalleled service
Building a custom home is an exciting opportunity to
have the home you've always wanted, in every detail.
That's why we offer the Easy Custom Home Loan. We'll
work with you and your builder, every step of the way,
to ensure that the home building process goes smoothly
and efficiently
Areas of Expertise
I specialize in construction loans and financing. The area that I spend most of my time is in Scottsdale, Arizona. I work with a number of builders, general contractors, developers and Realtors in the Scottsdale Area. I was born and raised in Scottsdale and I have a passion for construction and real estate in the area.
My Niche:
High End Luxury Construction Loans
Scottsdale and Paradise Valley Areas
Multi Million Dollar Construction Loans
Scratch Golfer
Other Interests:
Home Loan and Construction Loan Education
Primary Home Purchase/Refinance
Investment Properties
Construction Loans
Spec Financing
Lot/Land Loans
Construction Residential/Rehab
Spec Refinance
Community First Financial understands the entire process of buying real estate. We have properly aligned our company with indivduals in the real estate market place to deliver more than just great rates and great service. It is our goal to help build your wealth through real estate education and investment opportunities.
Brad Brown
Community First Financial
480-305-8900 ex 307
Monday, January 28, 2008
An article in the Wall Street Journal in regards to HELOCs.
Here is a link to an article from the Wall Street Journal, below is the informarion on freezing HELOC's.
http://online.wsj.com/article/SB120044716100193017.html
...In addition to walking away from delinquent loans, some banks are hoping to stave off future problems by reducing the amount of credit available to certain borrowers with lines of credit. Washington Mutual Inc. late last month notified about 3,200 of its customers with home-equity lines of credit that it was reducing the maximum amount they could borrow. The borrowers "have experienced an adverse change in their financial situation, as evidenced by a substantial credit-score reduction," a company memo said.
The memo added that in January, additional reviews would "result in additional decreases for borrowers with recently declining credit scores, as well as those with additional risk factors," such as declining home values.
A Washington Mutual spokeswoman says the action "was taken as part of our normal course of business" and that the company has "programs that have been in place for years that increase, decrease, block and suspend lines of credit based on a number of factors," including the borrower's payment status, credit history and property value.
Citigroup Inc.'s Citibank unit says that under the borrower's credit agreement, it is permitted to freeze home-equity advances or reduce credit limits if the home's value has declined below the original appraisal, or if it reasonably believes the borrower won't be able to make the required payment. Such adjustments are increasing in the current market environment, a company spokesman says. David Stevens, who runs the mortgage operation at Long & Foster Real Estate, based in Fairfax, Va., says he's received several calls from borrowers whose home-equity lines have been reduced because of falling property values. "It's a very prudent move, given the circumstances in the market today."
USAA Federal Savings Bank recently told one customer it was suspending his ability to borrow on his home-equity line after a review showed that the value of his home had declined since the line was originated and because of information on his credit report. "As with many other creditors, we are reviewing all home-equity lines of credit to ensure our credit exposure is commensurate with current market conditions and taking action where necessary," the bank said in a letter sent to the borrower. A USAA spokesman says he can't comment on the specific situation without more information, but adds that such reviews are done on a "case-by-case basis."
Such moves could become more common down the road. Wachovia Corp. doesn't currently make such adjustments, but "there is a reasonable probability" that it could do so in the future "based on what we're seeing in the marketplace," says Walter Davis, head of retail credit.
National City Corp. says it is closely monitoring the housing market and its credit portfolio, and may reduce the credit lines of some borrowers on a "case-by-case basis" in markets where home values have declined, a spokeswoman says
http://online.wsj.com/article/SB120044716100193017.html
...In addition to walking away from delinquent loans, some banks are hoping to stave off future problems by reducing the amount of credit available to certain borrowers with lines of credit. Washington Mutual Inc. late last month notified about 3,200 of its customers with home-equity lines of credit that it was reducing the maximum amount they could borrow. The borrowers "have experienced an adverse change in their financial situation, as evidenced by a substantial credit-score reduction," a company memo said.
The memo added that in January, additional reviews would "result in additional decreases for borrowers with recently declining credit scores, as well as those with additional risk factors," such as declining home values.
A Washington Mutual spokeswoman says the action "was taken as part of our normal course of business" and that the company has "programs that have been in place for years that increase, decrease, block and suspend lines of credit based on a number of factors," including the borrower's payment status, credit history and property value.
Citigroup Inc.'s Citibank unit says that under the borrower's credit agreement, it is permitted to freeze home-equity advances or reduce credit limits if the home's value has declined below the original appraisal, or if it reasonably believes the borrower won't be able to make the required payment. Such adjustments are increasing in the current market environment, a company spokesman says. David Stevens, who runs the mortgage operation at Long & Foster Real Estate, based in Fairfax, Va., says he's received several calls from borrowers whose home-equity lines have been reduced because of falling property values. "It's a very prudent move, given the circumstances in the market today."
USAA Federal Savings Bank recently told one customer it was suspending his ability to borrow on his home-equity line after a review showed that the value of his home had declined since the line was originated and because of information on his credit report. "As with many other creditors, we are reviewing all home-equity lines of credit to ensure our credit exposure is commensurate with current market conditions and taking action where necessary," the bank said in a letter sent to the borrower. A USAA spokesman says he can't comment on the specific situation without more information, but adds that such reviews are done on a "case-by-case basis."
Such moves could become more common down the road. Wachovia Corp. doesn't currently make such adjustments, but "there is a reasonable probability" that it could do so in the future "based on what we're seeing in the marketplace," says Walter Davis, head of retail credit.
National City Corp. says it is closely monitoring the housing market and its credit portfolio, and may reduce the credit lines of some borrowers on a "case-by-case basis" in markets where home values have declined, a spokeswoman says
Max out your HELOC!
Max your HELOC today, banks are going to freeze your account!!!
MAX YOUR HELOC!
My sources within the banking industry tell me that next week a number of large banks will start to freeze the Home Equity Lines of Credit on many of their borrowers. This means if you have any available credit/balance on your credit line it will be frozen and home owner will NOT be able to use it. I can confirm that USAA has already started this process in the state of Arizona.
Why would banks do this?
Lets say you have a line of credit for $100,000 on your home. At the time that you took out equity to 90% of the value of your home. Currently you only have $30,000 on the line of credit, but the ability to take out $70,000 more at any time. Now the bank that has your HELOC has looked at it's portfolio and sees that when they lent you the money your line was at 90% of the value , now due to declining markets they feel that this line of credit could be leveraged at 120% in some markets. Not only is there collateral worth less, but the return on that investment is dropping. Prime has declined 1% over the last year and will drop another .5% by the end of the month, so the rate of return on the banks investment into your property has dropped significantly. Basically declining values and a decrease in rate of return is forcing the banks to make a decision, FREEZE ALL HELOCS.
What I know?
USAA has started doing this, Countrywide, Wells Fargo, Bank of America, Citi Bank, Chase and a long list of others will follow. There are number of banks that have completely shut down their Home Equity division, so I guess this move should be expected.
As I am writing this my business partner and an employee left to go their bank to cash out their HELOC. This move by the banks make sense, so if you think you might need that line of credit you now need to transfer the money out of the HELOC and into your savings account today.
I will let you know when the official word is passed.
Brad Brown
7575 E Redfield Rd Suite 235
Scottsdale, AZ 85260
480-305-8900 ex 307 - office
480-393-8801 - fax
MAX YOUR HELOC!
My sources within the banking industry tell me that next week a number of large banks will start to freeze the Home Equity Lines of Credit on many of their borrowers. This means if you have any available credit/balance on your credit line it will be frozen and home owner will NOT be able to use it. I can confirm that USAA has already started this process in the state of Arizona.
Why would banks do this?
Lets say you have a line of credit for $100,000 on your home. At the time that you took out equity to 90% of the value of your home. Currently you only have $30,000 on the line of credit, but the ability to take out $70,000 more at any time. Now the bank that has your HELOC has looked at it's portfolio and sees that when they lent you the money your line was at 90% of the value , now due to declining markets they feel that this line of credit could be leveraged at 120% in some markets. Not only is there collateral worth less, but the return on that investment is dropping. Prime has declined 1% over the last year and will drop another .5% by the end of the month, so the rate of return on the banks investment into your property has dropped significantly. Basically declining values and a decrease in rate of return is forcing the banks to make a decision, FREEZE ALL HELOCS.
What I know?
USAA has started doing this, Countrywide, Wells Fargo, Bank of America, Citi Bank, Chase and a long list of others will follow. There are number of banks that have completely shut down their Home Equity division, so I guess this move should be expected.
As I am writing this my business partner and an employee left to go their bank to cash out their HELOC. This move by the banks make sense, so if you think you might need that line of credit you now need to transfer the money out of the HELOC and into your savings account today.
I will let you know when the official word is passed.
Brad Brown
7575 E Redfield Rd Suite 235
Scottsdale, AZ 85260
480-305-8900 ex 307 - office
480-393-8801 - fax
What is the new conforming loan amount?
Conforming Loan Limits to Increase
There is current legislation in front of congress that will increase the conforming limit from $417,000 to s much as $750,000 in some markets. Congress is currently working on the details of where, how much and how long will the new limits be in place.
Why is this important? Jumbo loan interest rate have been nearly 1.5% higher in some case than conforming rates. Your $550,000 could cost $400 a month less after this change.
The real estate market will bounce back(to normal pre-2003). With rates being very low, seller and buyers expectations becoming more realistic and now conforming limits increasing, this is exactly the lift we all need.
Brad Brown
7575 E Redfield Rd Suite 235
Scottsdale, AZ 85260
480-305-8900 ex 307 - office
480-393-8801 - fax
There is current legislation in front of congress that will increase the conforming limit from $417,000 to s much as $750,000 in some markets. Congress is currently working on the details of where, how much and how long will the new limits be in place.
Why is this important? Jumbo loan interest rate have been nearly 1.5% higher in some case than conforming rates. Your $550,000 could cost $400 a month less after this change.
The real estate market will bounce back(to normal pre-2003). With rates being very low, seller and buyers expectations becoming more realistic and now conforming limits increasing, this is exactly the lift we all need.
Brad Brown
7575 E Redfield Rd Suite 235
Scottsdale, AZ 85260
480-305-8900 ex 307 - office
480-393-8801 - fax
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