Ask Eli: Financing a Major Remodel or New Construction

This regularly scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Arlington resident. Please submit your questions to him via email for response in future columns. Video summaries of some articles can be found on YouTube on the Ask Eli, Live With Jean playlist. Enjoy!

Question: We are deciding between buying a lot to build a new house on or expanding and remodeling our current home. Do you have a recommendation for a lender who can finance these projects?

Answer: Over the years, I’ve found that one of the best banks for construction or major remodeling loans — and a favorite amongst local builders — is Sandy Spring Bank. They are large enough to offer some excellent, customized products with great rates and local enough that relationships with builders and homeowners matter to the success of their business. That’s usually a good combination for a business, especially lenders.

I have worked with Skip Clasper ([email protected]), a loan officer at Sandy Spring Bank, for years so I reached out to him to gather some details on their popular construction and remodel loan products.

Remodel Loans

Sandy Spring Bank will give you a loan to finance the cost of your remodeling project based on the expected post-construction value of your home. Given how high market values are now, that means you can get a significant amount of financing to expand and remodel your home.

There are a few things that stand-out about the way Sandy Spring Bank handles these loans:

• They offer 90% loan-to-value (LTV), meaning you can get financing for 90% of the future value of your completed home. Most banks limit their loans to an 80% LTV.
• They accommodate a flexible draw schedule. Banks give borrowers/builders draws to pay for construction incrementally as the project progresses. Many banks offer their draws on a fixed schedule, but given the unexpected twists and turns construction can take, a flexible draw schedule makes for a better process for everybody.
• You only pay interest on the money you have drawn from the loan so you only pay interest on the money you’ve used, not the money you will use
• Interest rates are competitive with rates you will find on standard, non-construction loans. This is noteworthy because oftentimes specialized loan products require paying higher interest rates.

Construction Loans

A construction loan allows buyers more control over building a new home because it allows you to finance the purchase of the lot and construction yourself. That means you can purchase the lot you want (easier said than done) and choose the builder you work with, as opposed to hoping that the builder who acquires a lot you like is also a builder you want to work with.

Here are some highlights and key pieces of information about the Sandy Spring Bank construction loans:

• You can purchase a teardown/lot and finance the construction of your home with a single closing. After closing on the teardown/lot, they will finance the construction, and then the loan will automatically convert into a permanent 30-year loan after the construction is completed.
• The loan is interest-only until construction is completed, making your payments during the construction phase much lower.
• Sandy Spring allows cross-collateralization on construction loans, meaning they will include equity in your current home toward your future down payment when considering your loan application/qualifications for your construction loan.
• It will take six to eight weeks or more to finalize the loan on your teardown/lot purchase, which may put you at a disadvantage in some cases if you are competing against buyers or builders who are paying cash or using a standard loan product that can close faster.
• All construction loans are Adjustable Rate Mortgages (ARMs) but can be refinanced into a fixed rate mortgage with a second closing.
• Interest rates are competitive with rates you will find on standard, non-construction loans. This is noteworthy because oftentimes specialized loan products require paying higher interest rates.

If you’d like to talk with Skip Clasper about Sandy Spring’s remodel, construction or other loan products the best way to reach him is by email at [email protected] or phone at 301-928-7523.

If you’d like to discuss buying, selling, investing or renting, don’t hesitate to reach out to me at [email protected].

If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to [email protected]. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at 703-539-2529.

Video summaries of some articles can be found on YouTube on the Ask Eli, Live With Jean playlist.

Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH Real Estate, 4040 N Fairfax Dr #10C Arlington VA 22203. 703-390-9460.