THE ULTIMATE LBI BUYER’S GUIDE

Building and Construction Loans in the Long Beach Island Real Estate Market

There are some excellent buying opportunities on LBI, especially in the “tear down” category. There are still storm damaged homes for sale on Long Beach Island and these are excellent candidates for Construction Loans on Long Beach Island New Jersey. By purchasing an older home and building new construction, you can often times beat the market (in other words buy and build for less than you could buy a similar house finished). For more information about Construction Loans on Long Beach Island New Jersey please do not hesitate to contact me, Nathan Colmer and I will be happy to help!

LBI Real Estate Construction Loans

Construction loans differ from a conventional loan in many ways. The terms and conditions of a construction loan will depend greatly on the individual applying for the loan and the institution offering the product but in general there are a few “standards” to go by.  For example:

• Construction loans on Long Beach Island NJ and elsewhere tend to be interest only loans with the balance due upon an issuance of a Certificate of Occupancy

• Construction loans typically carry a slightly higher interest rate and may be an adjustable rate mortgage

• Money is not given up front but rather in a series of “draws” for each stage of the construction project. It is common for the homeowner, the builder and the lender to establish this timeline prior to the loan being granted.

• Construction Loans on Long Beach Island New Jersey are not meant to be permanent. They are designed to fit a specific need and then a new mortgage be taken out on the property (which is typically a conventional loan)

It is important to understand the ins and outs of Construction Loans on Long Beach Island New Jersey and therefore it is best to speak with a lender who offers this kind of specific product.  Construction loans can be a very effective way to purchase a property on Long Beach Island and build a new home thus attaining positive equity almost immediately. Given their differences from a conventional loan, it is important to understand the terms and conditions as Construction Loans on Long Beach Island New Jersey are not for all buyers in all situations! There are other similar loan types (for example a homestyle loan which is a renovation loan) that may be better fit depending on the needs of the individual.

There are a number of loans that will combine the cost of the land purchase with the estiamted cost to build the new home and lend up to 75% of this number. In this case a set of pliminary plans will be needed to determine both the estimated cost of building and the estimated value of a new home. An appriasial will be conducted on both the property (usually just a drive by) and the plans. In these cases the money for building will usually be issued on a draw schedule as mentioned above and once the consturction is finsihed, the loan can be modified in to a conventional loan.

LBI Real Estate Cash Offers

It is important to understand what exactly a cash offer constitutes. Essentially, a cash offer simply means there is no financing contingency.  In many cases, a cash offer is not in fact made with liquid funds. In many cases, there will be some type of financing involved. Simply stated, the purchase is not subject to a buyer being able to obtain financing but with this kind of purchase, if something goes wrong before closing, the buyer does not have an exit strategy in the contract for not being able to obtain funds. Keeping this in mind, there are a few ways to compete with LBI real estate cash offers:

• A buyer can simply waive their right to financing protection in a contract. This is highly risky, because if something goes wrong during the underwriting process with a bank, the buyer could potentially be at risk for losing his or her deposit.

• A buyer can obtain funds through a cash-out refinance of their primary home or another piece of real estate that has significant equity. In these scenarios, a buyer is still seeking a mortgage, it is simply not on the property he or she is attempting to buy. In many cases, these loans will have lower interest rates, and more favorable terms so they can be worthwhile to consider.

There are some new financing loan options which essentially approve a buyer for the underwriting process before the subject property has been identified. These loans allow an offer to be made without a financing contingency, however there is a much lower level of risk if the buyer has essentially been approved for the loan. These types of loans are relatively new to the market and have had a great effect when competing in the LBI real estate market.