For millions of Americans, the inability to obtain financing for a new home or remodel has created a sense of entrapment and hopelessness.
Since the housing bust and economic collapse of 2008, banks and government regulators have imposed lending restrictions and regulations that are too odious for most potential home buyers. Many economists see this lack of home financing availability for common people as the root cause of the country’s economic malaise.
Dave Van Winkle, the first vice president of Citizens First Bank in Leesburg and The Villages, sees the landscape of home financing quickly changing, as government requirements ease and lending institutions adapt to new documentation regulations. Van Winkle says, “People are looking for the path of least resistance.” Also, agile lending institutions that can help their qualified borrowers navigate the maze of requirements can get financing deals completed.
Van Winkle points out that almost 30 percent of his active loan business in the pipeline is for new construction. This is a huge shift from just two years ago when home refinancing was dominating as homeowners scrambled for lower interest rates. Van Winkle points out that a pre-qualification assessment and letter is the first step in the home lending process to determine what you can afford, based on your credit score and income. He is quick to point out that at Citizens First Bank the pre-qualification process can usually be completed over the phone.
One big change for the Veteran Administration (VA) and the Federal Housing Administration (FHA) is the wait time for potential home buyers with a derogatory — which is defined as a foreclosure, short-sale or bankruptcy — has been reduced from three years to just one.
Plus, VA loans as well as USDA government loans offer up to 100 percent financing — no down payment. However, FHA loans require at least a 3.5 percent down payment with funding fees and mortgage insurance. According to Van Winkle, the big advantage of a VA loan is the borrower is not charged for mortgage insurance, and at Citizens First Bank, Van Winkle says, “We really love our veterans.” So, the bank offers a $1,000 credit toward closing costs.
Citizens First Bank is seeing a lot of potential home buyers choose an adjustable-rate mortgage (ARM) over a conventional one because of a growing desire to have a local servicer of their mortgage. Citizens First Bank retains ARM loans within the bank’s local loan portfolio, which allows for local posting of payments and a “real person” to discuss matters concerning the loan.
Five-to-1 ARM home loans can be amortized like conventional loans, up to 30 years, however, the interest rate is set for the first five years and then adjusted each year based on the 10-year Federal Reserve Treasury. The maximum interest rate increase per year is 2 percent with the maximum interest rate increase over the loan being 6 percent.
According to Van Winkle, there is increased activity with homeowners seeking a line of credit on their existing home to use for a remodel or addition, and he believes a line of credit is perfect for a home improvement project. In most cases, a line of credit is easier to attain because it requires less documentation.
Van Winkle’s advice for people who are going through the rough patches of the recent recession is to restore their credit by good payment histories and to build up some reserve, which shows the bank your ability to pay. He believes the housing market could see many consumers who are currently straddling the fence finally move to home ownership because of the availability of credit.
Don Magruder is the CEO of Ro-Mac Lumber & Supply, Inc., and he is also the host of the “Around the House” Radio Show heard every Monday at noon on My790AM WLBE in Leesburg.