LBI Real Estate Construction Financing

Financing Options for Building a New Home Long Beach Island

LBI Real Estate Construction Financing
LBI Real Estate Construction Financing

New Construction in the Long Beach Island Real Estate Market

Building a new home on Long Beach Island can be one of the best investments you can make. Currently, there are some excellent opportunities to purchase a teardown or vacant piece of land and construct a new home. The target for such a project should be to have the project cost approximately 30% below current market value. In other words, if a construction project, meaning the purchase of the land and the cost of building the home, costs $1 million the new home should be worth approximately $1,300,000 in the LBI real estate market. One potential roadblock to building a new home on Long Beach Island has to do with financing. Construction loans operate under different guidelines which can make obtaining LBI real estate construction financing more difficult. Therefore, it is important to understand your options as well as the risks and benefits of building a new home.

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LBI Real Estate Construction Financing

There are a few common elements present in most construction loans. They are:

  • The interest rate will be higher than a conventional loan
  • Construction loans are typically interest only
  • Depending on the lender, a construction loan may roll over into a conventional loan once the project is complete

Regardless of a credit score, income, or debt level in most cases the interest rate will be much higher on a construction loan than a conventional loan. This is due to the fact that construction loans are considered investment products with a higher level of risk. The good news is, the interest is charged only on the amount of money that has been used rather in the entire loan balance. In other words, if you are seeking $300,000 for a construction loan and that loan is broken into six $50,000 payments you only pay interest on the payments you have used today. Therefore, the bank will loan you an initial $50,000 payment which you will pay interest on. Once those funds have been exhausted and the next payment of $50,000 is issued, the interest charge will be on the hundred thousand dollars that has been used. This cycle will continue until the project is completed and the loan has been rolled over into a more traditional product. Most construction loans are interest only. Therefore, it is important to remember the payments you are making do not diminish the principal balance.

Most construction loans will offer some sort of exit in most cases, strategy once the project is completed. In most cases, this will involve rolling the world into a conventional product. A typical example would consist of a bank looking at the purchase price of the land and the cost of construction and then loaning 75% of total. Once the project would be completed, a conventional loan in the amount of the finished product would be issued.

Construction Loans on Long Beach Island

First and foremost, it is important to point out that I am a real estate agent and not a mortgage broker. The types of products available as well as the interest rates, terms, and conditions will vary greatly depending on the bank you are using in your individual financial picture. It is my personal recommendation to work with a local lender who understands the LBI real estate market and the benefits of investing in new construction. Working with local professionals can make a somewhat complicated process far easier. I strongly encourage all homebuyers in the LBI real estate market to consider new construction as a viable option. Building a new home not only generates instant equity, it can also come closer to meeting your expectations while staying in budget. For more information about the LBI real estate market or LBI real estate construction financing, contact me and I will respond right away.

By : Nathan Colmer | The Van Dyk Group

Cell: 609-290-4293 | Office: 800-222-0131 | ncolmer@vandykgroup.com

www.BuyLBI.com

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