Q: There are some beautiful older homes in Ponte Vedra that are 30-40 years old but might be in great need of updating. Is it possible to purchase one of these homes that may be in need of $100,000 or $200,000 or more in improvements and finance those improvements?
A: Yes. Either buying a home that’s in need of major renovation or wanting to renovate a home one already owns is financeable. It’s essentially a “mini-construction loan”. The lender will need the borrower to secure a contractor who will manage the project. It will require a contract and plans that will include the entire scope of work that is to be completed and financed. An appraisal will be done based on the COMPLETED value to support the loan requested. The lender will then oversee the construction with inspections and disburse funds based on work that’s completed to ensure the funds are allocated appropriately. At the completion the loan will be fully funded, the improvements completed, and a final traditional mortgage will be in place. The first step is to engage a mortgage professional with experience in this type of financing to help guide you through the process.
Q. Is it hard to finance a condo?
A. No, it is not hard to finance a condo but it is different than financing a house. The difference is that when one buys a house and finances it, the lender gets an appraisal of the home and away you go. With a condominium, an additional step is needed. Buying a condo is not just the unit itself that is being scrutinized but also the condominium association and all that comes with it. A condominium is an association of owners who all have a shared ownership interest in the common areas. Owners own a share of the roof, the common walls, etc., all things that require care and maintenance. Therefore lenders need to verify if the condominium project is already an approved project or one that is capable of being approved for lender financing. That includes a condo questionnaire completed by the Home Owners Association regarding the budget, litigation, occupancy, insurance coverages, construction or structural issues, and other items that pose a potential risk to lending in a project. The association may need to provide the financials, the by-laws, and other items that may be of interest in considering project approval. This is something one should research with their realtor or lender prior to embarking on a hunt for a condominium for their next home.
Q. Are “jumbo” mortgages harder to get than “conforming” loans?
A. Let us start by defining what is “jumbo” and what is “conforming”? Conforming loans are loans that are under the maximum loan limit for 2020 of $510,400. They are purchased by Fannie Mae and Freddie Mac from lenders who make home loans. Fannie and Freddie don’t actually lend to borrowers but buy loans from lenders that do. Jumbo loans are made by large money-center banks for the most part, since Fannie and Freddie do not buy jumbo loans. The differences are in the pricing of the rates and the guidelines. Historically jumbo rates were higher than conforming rates. That has really changed in the last 10 years in that the conforming rates are typically a bit higher than jumbo rates due to additional costs Fannie and Freddie have added to their pricing in an effort to be more profitable. The jumbo loan rates have become more competitive because the large banks that make them are competing to make loans to put in their portfolio and are more aggressively pursuing this borrower. However, with that jumbo loan comes a better credit quality so borrowers generally need higher credit scores and more liquidity. The jumbo loan, though, is still less difficult to obtain than some borrowers expect so get with your mortgage professional and see how their qualifications match up.
Have more questions? Leave us a comment or contact Brad King directly at 904-708-7453, bradley.king@usbank.com
