The Real Deal Miami

As housing recovers, local banks more forthcoming with construction financing

November 02, 2012 03:45PM

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Getting a loan for new residential construction is getting easier.  According to the New York Times, regional banks and credit unions have begun to offer more construction financing as the housing market improves.

Because regional banks know their local markets, they are more comfortable lending to local housing projects in prime areas, but qualifying remains difficult. 

“People want to make sure they know what they need to do early in the process,” Penn Johnson, the president of the Stamford Mortgage Company, told the Times. “You can’t apply until after you have building plans, a construction contract and a cost estimate.”

Down payments are usually figured at 20 to 30 percent of the total cost of the project, according to Mark Yecies, an owner of SunQuest Funding in Cranford, N.J.

Increasingly borrowers of construction loans are refinancing into a 30-year loan, with a single closing, called construction-to-permanent financing. However, despite their growing popularity, interest rates are usually higher.

“You might be paying an extra quarter to a half a percent above Fannie Mae” Johnson said, comparing that with “a 30-year fixed in the low 4 percent, and a 5-to-1 adjustable-rate mortgage at 3 percent.” [NYT]Christopher Cameron

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