It’s Never Been Easier to Finance Your Dream Home

Filed in Construction by on December 2, 2014

Financingby Dave Pedersen


Financing a “dream” lake home has no big twists or turns compared to financing a conventional home in the city or country. The question is how big is your dream and can you afford it.


There are very few special considerations or programs out there to help make the dream come true. However, there are special considerations depending on where the picturesque setting is and what type of home you plan to put there.


Many surprised home buyers have gotten partway through the loan process and been denied before they discovered that their home cannot be categorized as a second home due to the occupancy requirements.


Investment properties generally require more of a down payment and do not qualify for the same tax benefits as an owner-occupied home.


Good time to buy or remodel


Realtors and loan officers alike proclaim this to be a great time to buy a home or vacation property. Interest rates continue to hover near record lows and it’s never been easier to finance your home purchase.


“It is a perfect time to refinance any home you have to get a lower interest rate,” says Doug Bjorklund, Vice President and loan officer at First National Bank of Henning, Ottertail and Battle Lake. “You can take out equity to do improvements, pay off any debt or purchase a new home. If you know you will be in your house for a long time, a refinance is probably worth it in the end. You will spend more up front, but get it back in the long run.”


Bjorklund said a lot of people in the lakes area use home equity line of credit (HELOC) loans as another way to remodel or purchase items for the lake home. He says it gives the opportunity to purchase something when you need it and you don’t have to go get a loan. The money is in place, you just have to place call to get an advance. The fund also can be used as a possible tax deduction.


One financial alternative becoming rapidly more available is purchasing contract for deeds.


“The reason is the return on investment for money at the bank has become so minimal,” said realtor Randy Ryan at RE/MAX Preferred Real Estate in the Willmar/Spicer area. “Homeowners are looking to sell contracts to get a good buy of three or four percent, while banks get less than one percent. With 20 to 25 percent down, then this is an excellent way to finance property.”


Fixed-interest loans preferred


The best way to finance homes is to get a fixed interest rate loan product. If you cannot qualify for a long term fixed rate loan, there are other options such as taking an adjustable rate loan.


Bjorklund said the maximum a person can finance with a fixed rate loan is $417,000.


“If you are financing property costing more than $417,000 for a first mortgage, you can go to your bank to get a second conventional loan for whatever it needs to be or you can use home equity credit,” adds Bjorklund.


To build new or remodel


“If you own a cabin and enjoy the location and geography, it may be in your best interest to tear it down and build new,” notes Ryan. “It my be difficult to find a more desirable spot since lake lots have been picked over through the years. For example, Green Lake in Willmar has 800 homes and only two open lots.”


Chris Marvel, a loan officer at American Federal Bank in Fergus Falls, said remodeling will involve two loans, one for the construction work and one for the mortgage.


“In all remodels the taxes will go up,” notes Marvel. “once you dig into the an old cabin and find things you were not expecting, the harder it is to pinpoint the actual cost. When building new you may have limitations with the land use.”


You should be aware of what was once grandfathered into a property may have been pulled out when a home is remodeled or rebuilt. Marvel suggests hiring a good general contractor who has experience with building on waterfront property and is familiar with setback policies and area regulations.


Steady property values


When we bought our lake home ten years ago, lake front property had doubled in previous five years. After the economic meltdown in 2008, cost and interest rates have not only stabilized, but retreated significantly.


The good news of re-financing three times in a four-year period is an interested rate of less than three percent and we shaved $10,000 off the cost. However, this is tempered by the decrease in property value. Then again, the property taxes are lower.


Ryan suggests not going to a website lender, but rather to one of the local banks that knows the value of lake homes in that area. Ryan adds that lake property was not impacted as much as other real estate after the economic crash of 2008.


Financing tips


Are you interested in saving environmental resources and money? There are energy efficiency tax credits for using products like geo-thermo heat pumps and for upgrading windows and insulation.


What has changed in financing over the years is the need for more documentation,” adds Marvel. “Be prepared to provide tax returns, W2 wage stubs and two months of bank statements. In the past, you could get by with less, but approvals are being more scrutinized to see if you can handle the payments.”




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