This regularly sponsored question-and-answer column is written by Eli Tucker, Arlington-based real estate agent and Arlington resident. Please email your questions to him for a response in the next few columns. Video summaries of some articles are available on YouTube on the Ask Eli, Live With Jean playlist. Enjoy!
Question: We decide between buying land to build a new house or expanding and renovating our current house. Do you have a recommendation for a lender who can finance these projects?
Reply: Over the years, I’ve found that one of the best banks for construction or major renovation loans – and a favorite with local builders – is the Sandy Spring Bank. They are big enough to offer great personalized products at great prices and local enough that relationships with builders and owners are important to the success of their business. This is generally a good combination for a business, especially for lenders.
I worked with Skip Clasper ([email protected]), a loan officer at Sandy Spring Bank, for years, so I reached out to him to gather details on their popular construction and home improvement loan products.
Reshape loans
Sandy Spring Bank will provide you with a loan to finance the cost of your renovation project based on the expected post-construction value of your home. Since market values are currently high, that means you can get significant financing to expand and renovate your home.
There are a few things that stand out about how Sandy Spring Bank handles these loans:
- They offer a 90% loan-to-value ratio (LTV), which means you can get financing for 90% of the future value of your completed home. Most banks limit their loans to an LTV of 80%.
- They adapt to a flexible drawing schedule. Banks offer borrowers / builders drawdowns to pay for construction as the project progresses. Many banks offer their draws on a fixed schedule, but given the unexpected twists and turns construction can take, a flexible draw schedule makes for a better process for everyone.
- You only pay interest on the money you took out of the loan, so you only pay interest on the money you used, not the money you will use
- The interest rates are competitive with the rates you will find on standard non-construction loans. This is remarkable because specialized loan products often require paying higher interest rates.
Construction loans
A construction loan gives buyers more control over the construction of a new home because it allows you to finance the purchase of the land and construction on your own. This means you can buy whatever lot you want (easier said than done) and choose which builder you work with, instead of hoping that the builder who acquires a lot you like is also a builder with who you want to work for.
Here are some highlights and key information about Sandy Spring Bank construction loans:
- You can buy dismantled land and finance the construction of your house with one fence. After the teardown / lot is closed, they will finance the construction and then the loan will automatically convert to a 30 year permanent loan once construction is complete.
- The loan only bears interest until the construction is complete, which significantly reduces your payments during the construction phase.
- Sandy Spring allows for cross-collateralization on construction loans, which means they will include the equity in your current home for your future down payment when considering your loan application / loan qualifications to construction.
- It will take six to eight weeks or more to finalize the loan during your teardown / land purchase, which can put you at a disadvantage in some cases if you are competing with buyers or builders who are paying cash or using a loan product. standard which can close faster.
- All construction loans are variable rate mortgages (ARMs) but can be refinanced into a fixed rate mortgage with a second closing.
- The interest rates are competitive with the rates you will find on standard non-construction loans. This is remarkable because specialized loan products often require paying higher interest rates.
If you would like to chat with Skip Clasper about renovation, construction, or other Sandy Spring loan products, the best way to reach them is by emailing [email protected] or call 301-928-7523.
If you would like to discuss buying, selling, investing or leasing, please do not hesitate to contact me at [email protected].
If you would like an answer to a question in my weekly column or to discuss buying, selling, renting or investing, please send an email to [email protected]. To read one of my old articles, visit the blog section of my website at EliResidential.com. Call me directly at 703-539-2529.
Video summaries of some articles are available on YouTube on the Ask Eli, Live With Jean playlist.
Eli Tucker is a licensed real estate agent in Virginia, Washington DC and Maryland with RLAH Real Estate, 4040 N Fairfax Dr # 10C Arlington VA 22203. 703-390-9460.