Financing land in Leavenworth

I am hearing from a lot of clients that their banks are no longer financing land. I am finding that other local lenders are cutting back on their land loans by charging higher interest rates and/or requiring higher down payments. Some of these moves seem a little drastic to me. It’s unfortunate that these nationwide banks can’t look at the markets that are performing well (like Leavenworth) and exclude them from their ‘hide in the bunker’ mentality. It seems to me that cutting off good business in a good market is a poor way for a bank to recover. The real surprise to me is watching some of the other community banks that see the same market conditions we see and yet are still pulling back from land loans. It's as though they have been reading USA Today or something, instead of taking a drive around town. Buildable land in Leavenworth may be hard to come by, but that is kind of the point; the limited supply keeps the prices up, hence it is a good investment, and good for us to lend on.

So if Geordie has helped you find that perfect piece of land, but you have been disappointed by the response from your bank, keep calling around; we’re still out there with loans up to 90%, and 30 year fixed rates as well as ARMs and Interest-only.

Leavenworth Mortgage Crises?

People have been asking me how the recent mortgage meltdown will affect lending in Leavenworth. The truth is, the 'crises' is actually helping people in Leavenworth. As you might imagine, few people purchase a vacation home with a subprime mortgage, and the typical Leavenworth buyer is at the far end of the spectrum from the person who needs one. So the collapse of this financing doesn't hurt the Leavenworth market at all.

Where the benefit comes from is this: Within the secondary mortgage financing world there is a 'flight to quality'; investors are hungry for Mortgage Backed Securities (MBS) composed of low risk -high quality mortgages. As a result, they are paying more for these good MBSs, which like a bond, drives down the interest rate. The bottom line is, conventional rates for good mortgages are dropping!

Jumbo loans are a little different. A jumbo is a loan amount above $417,000. Secondary financing for Jumbos has also dropped off, as a result, jumbo rates with the large lenders have gone above 8%. Fortunately for smaller banks like ours, the rates have not gone up as much. In fact our rates for jumbo construction loans are not even that high.

The best thing is to talk with a lending professional to guide you through the daily-changing maze of lending programs.

I met with some clients today building a home on East Leavenworth Road, they needed to borrow an amount well above $417,000 for their project. There project had been delayed since Spring, and they were wondering what impact the delay would cost them in financing costs.

In our discussion I learned that they intended to sell a rental house in Seattle during the construction period. I showed them that instead of doing a one step (construction plus final mortgage) jumbo construction loan which would give them a rate of 7.625% as their final mortgage, I could do a simple construction-only loan now and refinance into a conventional loan at lower rates when their project is complete (using the sale proceeds to bring the loan amount down to $417,000). The closing costs for the two-step process are roughly the same as they would be for the all in one loan. The clients feel confident that with current conventional rates around 6.375%, there is not much risk of the conventional rate getting near the 7.625% range. So they came away happy that their home financing would not be as expensive as they feared.

Construction lending can be confusing, if you want to learn more about it you can read my recent article.

One other thought, with conventional rates dropping, and all the appreciation in recent years in Leavenworth propeties, we may be headed into one of the only refinance booms in the industry. You never know.

Leavenworth construction continues to boom, I am currently working on six construction loans within the Leavenworth market. So where the mortgage meltdown may lead to some bargain properties in Detroit, the bargains in Leavenworth are today's prices compared to where they will be in the future. Geordie can explain the supply/demand dynamics which make that a reality.