Archives June 2024

New YorkCNN — 

Help may not be on the way for first-time homebuyers frustrated by high mortgage rates and even higher home prices.

Economists at Bank of America warned this week that the US housing market is “stuck and we are not convinced it will become unstuck” until 2026 — or later.

The bank said home prices will stay high and go even higher. The housing shortage will persist. And mortgage rates may not fall much — even if the Federal Reserve finally delivers long-delayed interest rate cuts.

“This will take many years to work itself out. There isn’t a magic fix,” Michael Gapen, head of US economics at Bank of America, told CNN in a phone interview. “The message for first-time homebuyers is one of patience and frustration.”

Housing affordability is a major problem in America.

Home prices spiked during Covid-19 and then the Fed’s war on inflation sent mortgage rates surging.

The one-two punch has made it a historically unaffordable time to buy a home.

“It’s been a weird combination. Mortgage rates rose substantially but so did home prices. That typically doesn’t happen,” said Gapen.

The supply of homes simply cannot keep up with demand. Prices have had nowhere to go but up.

The median price of a previously owned US home climbed in May for the 11th month in a row to a record $419,300 — up 6% from a year earlier.

Bank of America expects home prices will climb by 4.5% this year and then by another 5% in 2025 before eventually dipping by 0.5% in 2026.

‘Lock-in effect’ could persist for eight years

One major problem hurting supply is the “lock-in effect.”

People who already own their home are effectively locked into their property after refinancing or getting a mortgage during the pandemic when ultra-low rates were available. Buying now at current rates would require them to pay hundreds of dollars more per month on interest alone. Plus, home prices have gone up.

For many, it just doesn’t make sense to move. And because those homeowners are not moving, the supply of existing homes on the market is limited.

“Why would I sell unless I have to?” said Gapen. “Prices have gone up and the mortgage rate is a lot higher. So, I’m content to stay where I am.”

Bank of America warns the lock-in effect could persist for another six to eight years, keeping a lid on supply during that time.

That’s because the mortgage rate of people who already own is historically low. And the rate for new buyers is elevated. Bank of America doesn’t think that gap will shrink much for years.

This problem helps explain why pending home sales fell in May to a record low, according to data released on Thursday. Pending sales, tracked by the National Association of Realtors since 2001, are a forward-looking gauge of home sales that measures contract signings.

‘They can’t take their mortgage rate with them’

Dave Liniger, who co-founded real estate giant RE/MAX with his wife in 1973, said the lock-in effect means people who want to size up to a bigger home can’t, and the next generation can’t even get their foot in the door for a starter property.

“The move-up market does not exist,” Liniger told CNN. “Starter homes have doubled in value and the owners would like to move up but the problem is they can’t take their mortgage rate with them.”

Liniger agrees that the housing market is stuck, for now at least.

“We have to muddle our way through this for a period of time,” he said.

But Liniger urged first-time homebuyers to remain patient. “Don’t give up the dream,” he said.

In theory, a flood of supply of new homes would help unstick the market.

However, Bank of America expects housing starts — which is a measure of newly constructed homes — to remain flat for the coming years. And housing starts have still not recovered from the bursting of the housing bubble in the mid-2000s.

Divide between haves and have-nots

The forecast for a “stuck” housing market cuts both ways.

The spike in home prices has padded the net worth of existing homeowners and given them additional financial flexibility.

The longer they are prevented from buying, the more time they miss out on wealth creation.

In a recent Gallup poll, just 21% of Americans said it is a good time to buy a house, tied for the worst reading in Gallup history. An overwhelming majority — 76% — say it’s a bad time to buy.

Gapen, the Bank of America economist, said if the US economy achieves the soft landing that he expects, meaning that inflation cools without triggering a recession, there is a risk that home prices will rise even more than anticipated.

On the other hand, if the durability of the recovery has been overestimated and a recession is on the way, home prices could tumble and affordability would ease.

“But, obviously, you don’t want to go through a recession to have better housing affordability,” he said.

TAMPA, Fla. – A recent report is unpacking the impacts of rising homeowners insurance costs in Florida. 

According to a new report from online realtor Redfin, nearly three-quarters (70.3%) of Florida homeowners say they or the area they live in have been affected by rising home insurance costs or changes in coverage (e.g., their insurer dropped them) in the past year. This compares with less than half (44.6%) of homeowners nationwide.

The report is based on a Redfin-commissioned survey in February of this year. The survey was fielded to 2,995 U.S. homeowners and renters.

“Insurance is top of mind for homeowners in Florida and California because those states are the epicenters of the insurance housing crisis,” Kenneth Applewhaite explained in an April 17 news release. 

Applewhaite elaborated that many homeowners have seen their premiums skyrocket, and some have lost coverage altogether because intensifying natural disaster risk has prompted many insurers to stop doing business in Florida and California. 

In the Sunshine State, 11 insurers have liquidated amid growing flood and storm risk,” he wrote. 

Mounting insurance costs and natural disasters are prompting some people to relocate. According to Redfin, in Florida, 11.9% of survey respondents who plan to move in the next year cited rising insurance costs as a reason — roughly twice the national share of 6.2%. 

But while some people are leaving disaster-prone areas, there are still more people moving in than out, a separate Redfin analysis found.

Homeowners living in areas where insurance premiums are surging are at risk of seeing their properties gain less value than homeowners in areas with stable premiums — and in some cases, they may even lose money,” said Redfin Chief Economist Daryl Fairweather. “Homes with low disaster risk and low insurance costs will likely become increasingly popular, and thus more valuable, as the dangers of climate change intensify.”

Condo prices in some parts of Florida have already started to fall amid an increase in insurance costs and HOA fees.

As a property developer or home builder, you know that time is money. While you can choose from many construction loan lenders, private or hard money lenders offer significant advantages over a traditional mortgage lender. Here are just some of the advantages of hard money loans:

• Loans close much faster than traditional mortgage loans.
• Programs range from home construction loans to condominium and multi-family construction loans.
• Terms are based on your experience and the project’s prospects for success.
• Loans come with interest-only payments and a balloon payment on completion.
• There are no prepayment penalties.

Interested? Read on…or contact us for details or book an appointment to learn more.

When financing construction projects, whether you are building or renovating, it is important to thoroughly understand your construction loan – its features, how you benefit, what’s required to qualify, and the application process. Financing a construction project is different than financing a home purchase with a standard mortgage loan. Your real estate investment in the lot, construction costs, and activities in each construction phase will affect your profit. Therefore,when choosing a lender for your construction loan, you must know your options and what considerations to weigh to help you select the right one.

At Muevo, we’re committed to educating borrowers about the financing alternatives available for their projects and helping them secure the right hard money loan to meet their unique needs. In this blog, we’ll review the ins and outs of construction loans – how they work, why they can be advantageous, what you’ll need to apply and be approved, and why you should consider a private lender like Us as your financing partner. We’ll also share some potential challenges and how to overcome them as well as several tips to ensure you successfully qualify for our construction loan program.

Understanding Construction Loans

Construction loans are used to finance the building of a range of property types. At Muevo, we offer them for the construction of:

• Condominiums
• Single-family residences
• Two-to-four units
• Multi-family homes
• Townhouses
• Other property types (on a case-by-case basis)

There are several distinct advantages of obtaining a construction loan for these particular projects. First, a construction loan provides the necessary funds to cover embedded costs including labor, materials, permits, and other related expenses. Securing such a large amount of capital upfront for a construction project would be challenging without financing.

Second, a construction loan ensures proper cash flow management via the draw process, which we’ll explain in greater detail later in this blog. Third, these loans make it possible to seize construction opportunities in high-demand areas – which yield higher returns once completed. You also stand to benefit from increased property value and rental income (if you are planning to rent once the project is completed). Finally, financing via a construction loan will help you build equity for your next project.

Qualifying for a Construction Loan

Once you’ve determined that a construction loan is the best way to get your project off the ground and ultimately completed, you must prepare to qualify with a lender.

Before all else, become familiar with the credit score and financial requirements necessary to be approved for the construction loan from your lender. And know that both your personal and business financials will be thoroughly reviewed. As such, your lender will require you to provide related documentation and paperwork for verification purposes. They will make an assessment of your financial situation by also weighing income and debt considerations.

Other important financial requirements to be aware of are the required down payment amount and your loan-to-value ratio. These also factor into whether you can qualify.

In addition, you will need to furnish information about your project and those involved in its construction, such as:

• Contractor credentials
• Property information and proof of lot/land ownership (title deeds, zoning info, property surveys, etc.)
• Insurance coverage
• Any legal contracts with the construction team, architect/engineers, or other parties involved

You may also be asked to provide even more documentation as the information a lender needs can vary by project. At Muevo, we use this property data to properly assess its value and ensure compliance with local regulations.

The Construction Loan Process

When applying and obtaining approval for a construction loan, the process is fairly straight forward.

1. Pre-application phase – Borrower investigates requirements, gathers necessary documentation
2. Loan application and approval – Application and documents are submitted, reviewed, and approved
3. Construction contract and plans review – Lender reviews all required property-related information
4. Loan disbursement and draw schedule determination – Funds are distributed in accordance with outlined draw schedule
5. Inspections and project monitoring – Lender conducts necessary inspections and continually monitors the progress of the project
6. Transition to permanent financing – Draw schedule concludes and regular payment schedule commences

Finding a Private Lender for Construction Loans

When it comes to construction loans, there are some district benefits in working with a private lender. Private lenders offer more flexible terms and loan amounts than traditional lenders.

Their loan application and funding process is much quicker too. Private lenders are also well versed in the local real estate markets in which they operate. In addition, once you have established a partnership with a private lender, there is the potential for additional financing opportunities once your project is successfully completed.

However, to select a private lender that is a good fit for your project, you must consider a number of factors:

• Reputation
• Experience
• Loan terms
• References
• Financial stability

Research and compare private lending companies in your area based on these factors to identify where you can most easily navigate the application and approval process. For example, loan terms can vary considerably. At Muevo, our standard new construction loan terms are as follows:

• Max Loan Amount: $10,000,000
• Max LTC/ARV (Loan to Cost / Loan to After Completed Value):
  – Experienced Investors: The Lesser of 82.5% LTC or 70% ARV.
  – Inexperienced Investors: The Lesser of 65% LTC or 55% ARV.
• Rate: Starting at 10.5%
• Term: 12-24 months
• Payments: Monthly Interest Payments with Balloon at Maturity
• Prepayment penalty: None

Managing Construction Loan Funds

One of the most important steps that must be taken to complete a construction project successfully is to create a detailed budget. This is where the draw process comes in. Rather than receiving a lump sum check, construction loans pay out the loan amount over the course of the project. The installments are called draws, as the lender draws funds from the account. A draw request is necessary to ensure disbursement of the funds.

Many lenders do prorated draws, typically 80% financing/20% equity ratios on every draw. Our loans start once the 20% has been completed. Should you have investors, it is important that they understand the draw process and the difference between money spent and job completed.

In the end, the draw process ensures the proper allocation and use of funds and allows for contingency planning in case there are any unexpected costs.

You have questions. We have answers.

Who are the best hard money lenders in Florida?

Are you looking for private or hard money lenders for your construction loans? Do your research! The best private lenders, whether in Florida or anywhere else, have proven track records that are easily accessible on your County Recorder of Deeds website. Don’t just take their word for it. Ask your lender to show recent transactions they have funded and provide a link to the recorded documents. Beware of companies that advertise as lenders but are just brokers, adding additional fees. As a builder or investor, take your time to research potential lenders and ensure they are legitimate before proceeding. Experience counts. Muevo has brokered over 3,000 loans totaling more than $300 million in the last 10 years. Our loan programs have financed thousands of projects with attractive construction loan rates, reasonable closing costs, and, most crucially, flexible loan terms and speed!

Will the bank or private lender let me be my own general contractor?

Yes, many home builders and contractors utilize construction loans to fund their own construction projects. You will be subject to the same requirements as those developing investment properties using a third-party general contractor. Acting as your own general contractor should not affect your hard money loan as long as you have experience and a history of successfully repaying your construction loans.

Tips for a Successful Construction Loan Experience

Inherent to the construction process are several potential challenges that can impact your financing. These include construction delays and cost overruns, changes in market conditions and interest rates, and unexpected construction issues all of which require contingency plans. To that end, there are several things you can do proactively to mitigate these risks.

First and foremost, be sure you are engaging with professionals, such as seasoned architects and experienced contractors. And do all you can to communicate clearly and constantly with your lender and construction team. Closely monitor the progress of your project and resolve any issues that arise as promptly as possible. Finally, stay organized. One of the best ways you can do that is by maintaining accurate, up-to-date documentation throughout the course of your construction project.

Now that you have a good understanding of how construction loans work, how to qualify, how you benefit, how to select a private lender and how to ensure a smooth experience, you can confidently move forward and secure the financing you need for your construction project. Take the next steps in obtaining a new construction loan with RBI! Click here for more information.

For professionals seeking quick and flexible financing solutions, hard money lenders are an invaluable source of opportunity in the real estate industry. While these lenders offer a lifeline for those looking to seize lucrative opportunities, navigating the terrain requires caution. In this article, we’ll shed light on common mistakes professionals make when borrowing from hard money lenders and provide valuable insights to steer clear of these pitfalls.

Mistake 1: Underestimating the True Cost

One prevalent mistake is underestimating the true cost of borrowing. Hard money loans often come with higher interest rates and fees compared to traditional financing options. Professionals must meticulously analyze the total cost of the loan, including interest rates, origination fees, and any other associated charges. By doing so, borrowers can make informed decisions about whether the investment remains profitable in the long run.

Tip: Always request a clear breakdown of all costs associated with the loan and carefully assess how they align with your overall financial strategy.

Mistake 2: Ignoring the Terms and Conditions

Another common pitfall is neglecting the fine print in the loan agreement. Hard money lenders may impose strict terms and conditions, such as short repayment periods and high penalties for default. Professionals must thoroughly review the terms, seeking clarification on any ambiguities. Ignoring these details can lead to financial stress and potential legal complications.

Mistake 3: Overleveraging Without a Cushion

One critical oversight is overleveraging without a financial cushion. Some borrowers make the mistake of borrowing the maximum amount without considering unexpected expenses or market fluctuations. This can lead to financial strain and increase the risk of default.

Tip: Build a financial cushion into your borrowing strategy, considering potential unforeseen expenses, market uncertainties, and other risk factors.

Mistake 4: Failing to Have an Exit Strategy

A crucial oversight is neglecting to establish a clear exit strategy. Hard money loans are typically short-term, and professionals need a well-thought-out plan for repayment. Without a viable exit strategy, borrowers may find themselves scrambling to secure alternative financing or facing unfavorable terms for an extension.

Tip: Develop a comprehensive exit strategy before obtaining the loan, considering potential challenges and outlining specific milestones for repayment.

Conclusion

Borrowing from hard money lenders can be a strategic move for professionals in real estate and investment. However, avoiding common mistakes is essential to ensure a positive and profitable experience. By thoroughly understanding the costs, scrutinizing the terms, being cautious about overleveraging, and having a well-defined exit strategy, professionals can navigate the terrain of hard money lending with confidence and success.