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Tuesday, October 24, 2017

Over the past few weeks, but certainly over the past few days, homes – and specifically backyards and driveways – have been busy with construction. Succos, one of my favorite holidays is upon us, and everyone is busy getting their temporary dwellings built and ready for the upcoming chag. As many might have observed well before this imminent season however, blocks-and-lots have been abuzz with major home renovation for quite some time, with home construction being a major option in today’s real estate marketplace.

One of the most common considerations that both an aspiring homebuyer and an existing homeowner might have to consider at least once in their lifetime, is the premise of buying a turn-key new construction home, or doing the construction on their own. It’s an old debate and has even caused distinct statistical record keeping for both types of home sale types in the real estate market. As a leading mortgage banker in the area I come across this predicament frequently. Fortunately or unfortunately, there is no magic answer to this process other than delving into the details very specifically with a trusted advisor.

The best course of action in helping determine some of the key components of the discussion is to understand the “financial aspect” of the process. Buying an older “existing” home means purchasing a property at (usually) a discounted price, with the intent of the homeowner doing their own construction and renovation at a later time. In contrast, a buyer could purchase a more expensive “new construction” home, which has been completed by a builder or investor, and is available immediately as-is.

For the purpose of illustration, I will go under the assumption, that the “end product” (ie: the completed home) is exactly the same, and that the total cost is exactly the same. This assumption helps level the comparison, but obviously is almost never the true case. That said, the contrast between these two examples is upon who the brunt of the construction expense falls. In the case of the builder, it is they who bear the risk and exposure of financing the construction project in hopes of selling to an end user at their desired price-point. For the buyer, they are able to come in at the end and buy a turn-key home with one purchase-mortgage as needed.

The alternative to buying a new construction home is to “do it yourself.” When I say do it yourself, I don’t mean literally having to manage the construction process, because that aspect can be outsourced to a general contractor or builder in the same manner as in the scenario above. What it does mean however, is that the owner is now responsible to purchase the property as-is, and then to obtain the necessary funding to finance their construction costs. Similarly, for homeowners who already own their home, the considerations might be to renovate the property that they own, or to buy something completed, and sell their current residence.

The good news however is, the process or getting the financing to “bridge” multiple homes, or for “construction” financing, has become a lot easier over the past few years than in years-past. That’s not to say the process is readily available everywhere. In fact, most banks and financial institutions will not consider financing anything that is related to renovation, and/or based on “projected” or “future” value after construction is completed. Despite the limited options, there are programs and options, available from lenders, such as Approved Funding that can help someone navigate this process.

To be more specific, this means that someone who currently owns a home and wants to explore construction options, or someone who wants to buy a house and custom-build it themselves, there are a myriad of options available to help with this process to first time home buyers and existing homeowners alike. So as you walk the streets this Succos enjoying the temporary dwellings, you can also dream of enjoying your own permanent dwelling and know it is within reach. To be continued… Shout out to Chaim Schulman!

By Shmuel Shayowitz

 Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Approved Funding is a mortgage company offering competitive interest rates as well specialty niche programs on all types of Residential and Commercial properties. Shmuel has over 20 years of industry experience including licenses and certifications as certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. He can be reached via email at [email protected]