Mountainscape Blog - Advice and Information
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Commercial financing options are vastly different than those available for residential properties. If this will be your first commercial loan, I strongly recommend you review the differences before searching for your first investment property. Why are the loans so different? Think of it this way, the primary purpose of commercial property is to generate income. In contrast, residential loans are made for the purpose of providing a borrower with a place to live. As such, commercial lenders are much more concerned with the income producing capabilities of the property rather than your personal ability to repay the loan. While you must still have good credit and the ability to meet the initial down payment requirements, lenders will be more interested in whether the property will generate the monthly income necessary to pay expenses including insurance, taxes, and your loan payment, and still have money remaining for keeping the business viable.
Lenders view commercial loans as a higher risk than residential loans. This additional risk means commercial borrowers can expect larger down payments (at least 20%), higher interests rates, higher closing costs, and shorter loan terms. Commercial loans are typically fixed for 3, 5, or 10 years and often include prepayment penalties. In addition, commercial lenders are not required to abide by governmental regulations designed to protect consumers in residential transactions. Commercial borrowers can expect longer closing times and more required documentation such as costly appraisals and possibly even environmental studies. As determining risk is often difficult for lenders, most lenders prefer to deal with landlords as opposed to the business owners themselves. By dealing with landlords, lenders can focus on current rents and occupancy rates as opposed to the specifics of individual business plans.
Finally, because there are many different types of investment properties (Retail, Office, Medical, Warehouse, Hotels etc…) there is also a greater degree of specialization among capital sources. Many lending sources specialize in lending on a particular type of commercial property. Loan packages are highly customized by property type rather than standardized as in residential loans. As you can see, commercial financing is very complex and requires proper guidance before moving forward. However, the advantages and potential financial rewards of purchasing investment properties keep buyers in the market.
The “Due Diligence” period begins upon the execution of the purchase agreement and runs for a set amount of days that are negotiated prior to the execution of the contract. During this time period, Buyers will have all property inspections completed, appraisal performed, bank loan approved, and any repair costs negotiated. While a Buyer is within their “Due Diligence” period they may decide to terminate the purchase contract for any reason at all and receive back any “Earnest” or “Good Faith” money they had put down to secure the property. This is the time for the Buyer to negotiate any changes to the contract based on the results of their due diligence and to make their final decision whether to move forward. However, once the “Due Diligence” period has passed, If the Buyer were to decide to back out of the contract for any reason at all then the “Earnest” or “Good Faith” money may be released to the Seller as liquidated damages.
This makes it critical for Buyers to know before making an initial offer how much time they will need to get inspections completed, repairs negotiated, and meet all the bank’s requirements to secure their loan. In our experience, very few buyers have the knowledge necessary to make this decision without the assistance of an experienced real estate agent. A good local agent should know how to advise you based on your circumstances. They should know how long different types of inspections may take and what loan requirements may hold up the process.
If you will need or wish for an extended Due Diligence Period then the Seller may ask for a separate “Due Diligence” fee. This fee is not additional “Earnest” or “Good Faith” money. The fee is negotiated between the Buyer and Seller as a way to compensate the Seller for allowing the Buyer additional time to complete their due diligence. The amount of additional time and the amount of the fee negotiated will often depend upon the local market. In a hot market where properties sell quickly the fees may be higher. In a market where properties languish on the market for months, the fees may be lower or non-existent, as Sellers may not want to risk loosing a Buyer with little chance of another offer coming in soon. A negotiated “Due Diligence” fee is payable directly to the Seller at the time the purchase contract is executed. The good news for Buyers is that the “Due Diligence” fee will be credited back towards the purchase price if the Buyer completes the purchase. For more information regarding this topic please call us and speak to one of our great agents!
Have you ever wondered if your neighbor was digging a hole, building a dog pen, or cutting a tree, that could possibly be on your property? Those type of questions are critical reasons for wanting a professional survey completed. Even if granny told you where the property line was, how do you know for sure someone did not move the stakes? A survey represents a peace of mind and takes the guessing out of situations when you feel someone is encroaching on your property. Surveys are performed by highly trained and licensed professionals that take the utmost care in ensuring your survey is completed correctly and with precision.
Older surveys were possibly completed by a pole and chain method, with landmarks referring to a “certain tree”, which may not exist anymore. Modern day surveys use Global Positioning Systems and are accurate to as little as fraction of an acre. Even with modern survey tools, a stake or iron pin can disappear, be pressed into the ground, or moved by someone who did not want to mow around it.
A deed may not be insurable by a title company, because a new survey was not completed for you in your name. The surveyor and/or the title company can be held accountable if survey is incorrect. Some banks make surveys a requirement of the loan if borrowing. Surveys uncover easements, flood zones, and encroachments or if setbacks have been violated.
The cost of a survey varies according to the size of the property, whether it is in a subdivision or not, if a previous survey had been performed, and the irregularity of the property. There is not a set dollar amount for a survey, but the peace of mind a survey provides is worth the cost. For more on why obtaining a survey may be a good investment, contact us at any time. Good Luck!
You have the log home of your dream, but it has lost it’s luster. What can you do? One great way to restore that original luster is to re-stain those exterior logs. Too often we see log homes that were originally stained with an inferior stain and as a result they begin to fade within a few years. We highly recommend you use a quality stain such as Sikkens stain products. While they may have an initial higher costs, they will lasts much longer and look much better.
Prepping a log home for staining is accomplished by first cleaning with a log wash solution, sanding, power washing surfaces, or blasting with a corn cob media. Once completed, you may begin the stain process. Begin by choosing an idea color or combination of colors. Most companies will send free samples at your request. Oil based stains are not recommended, due to the extensive clean-up required. Also, restrictions on VOC ( Volatile Organic Compounds) levels have become increasingly strenuous on oil based stains. The final step is applying a sealant in either satin or glossy finish.
Paint will cover the beautiful appeal a log home is known for and peel over time. Paint will not protect the logs from weather damage, causing potentially more damage and headaches. Staining is the prefered method, because stains penetrate and protect the logs. If you would like more information and tips on how to best maintain your new log home, feel free to give one of us here at Mountainscape a call.
Many people look at foreclosures as a great deal. Why pay more when you can pay less, right? Shoppers need to prepare themselves for the ups and downs that come with purchasing a potential “great deal”.
Foreclosures come in many different shapes and sizes. Some foreclosures are in relatively perfect condition with little repairs. However, most are not and they often do not meet loan requirements stating “move in ready conditions”. Expect the home and yard to be unkempt and uncared for, possibility for months or even years prior to the bank taking possession. The electricity will most likely be off so we will have flashlights to check closets and basements. The water might have been turned off during the cold winter months, causing the pipes to freeze and burst. With the house vacant, wood destroying insects and rodents may have claimed themselves a resident of your prospective home. Issues, such as leaky roofs and foundational concerns, go unnoticed in a vacant homes causing extensive damage or mold and mildew. Expect fixtures and appliances to be damaged or missing as many prior owners will strip the property bare before leaving. Many additional hidden or unseen problems may be discovered by obtaining a home inspection, as always recommended by Mountainscape Realtors.
With most foreclosures sold in a “as is” condition and with a reliable home inspection in hand, it will be easier to estimate the cost of repairs after closing. Large companies handling hundreds of properties across the country, do not usually handle repairs and just want the property off their books. It is your responsibility and your Buyers Agent to know what you are getting into, the positives and the negatives. We would be happy to assist you at any time.
The HomePath Mortgage is a program that was created by Fannie Mae due to the large number of homes that were obtained by Fannie Mae through foreclosures. HomePath financing is only available on foreclosure homes being sold through Fannie Mae and HomePath. There are three main components loans have sweetening the financing offer to entice home buyers, all of which are explained below.
HomePath Mortgage allows a borrower to purchase a Fannie Mae owned property with a low down payment, flexible mortgage terms, no lender-requested appraisal, no mortgage insurance, and expanded seller contributions. The final sales price is used to underwrite the loan. Examples of benefits borrowers incur include 3% down payment on owner occupied properties and no Mortgage Insurance Premiums. Loans are available for owner occupied properties, as well as investment properties. Fannie Mae uses the sales price as it’s valuation, therefore no appraisal is needed.
Loan limits are set up to $729,750. This is dependent upon the properties location for a single family home. Four unit loans are available up to $1,403,400 in high cost areas. Although a minimum credit score of 600 is required by Fannie Mae, most lenders will require a higher score and you must meet the most restrictive requirements to get the loan. Borrowers must have 5% of their funds towards the purchase price.
Whether you are a first time home buyer or a seasoned investor, it is recommended to work with an experienced HomePath lending specialist and a seasoned agent who understands the guidelines required and who can clearly explain your options. For more information, feel free to contact us here at Mountainscape. Good Luck!
In most cases you can expect that the initial asking price on a foreclosure to be slightly below its market value. Prior to listing a property, the bank or asset management company will request the listing agent complete a Broker Price Opinion. This opinion becomes the basis for the property’s initial pricing. An experienced Buyer’s Agent will be able to advise you on how the initial asking price compares with the current market value for the property. Oftentimes the value appears low, however, the lower value is based primarily on the properties poor condition due to lack of upkeep. The good news is that you can expect the initial asking price to drop fairly quickly if no acceptable offers come in. Most foreclosures are reviewed every 30-45 days for a potential price drop. The Bank will continue to drop the asking price on a regular basis until the property sells. The key to getting a great deal is making the right offer at the right time before the next guy swoops in. Our next blog article on foreclosures will focus on the basics of making the right offer.