In the world of real estate, lot financing is a rising trend – and for good reason. Why? We caught up with U.S. Bank Mortgage Loan Officer Zack Cervantes for expert insight on the subject. From the benefit of lot loans to current market conditions, and more, Zack covers everything you need to know about this emerging trend.
Tell us how lot financing works?
Lot financing works very much like a traditional mortgage. The lot loan is traditionally a vehicle to secure the land now and allows you three years to work on the home design, so you can return for a construction loan to build your dream home, second home, or vacation home.
What are some of the features of lot loan financing?
The lot loan provides for the ability to get competitive terms that can be refinanced and can be refinanced if you are not ready to build within the three-year period. Obtaining a lot loan helps preserve your capital as it will be spent on architectural fees and planning as you prepare for the construction phase to begin.
Does size/number of acres make a difference?
We typically can finance up to 20 acres. We can accommodate larger parcels if it’s intended to build a primary home.
Do I need to build a home within a certain time period, and how do interest rates vary vs. home mortgage?
Both the lot and construction programs are a portfolio program – meaning it’s U.S. Bank money and pricing. We can maintain level pricing on both products, which is not directly market-correlated, removing the daily volatility we have seen in recent weeks. Our lot loan program is currently priced lower than a conventional purchase loan, and our Construction product is priced the same as our jumbo purchase rate and provides today’s price for the entire term of the construction loan – protecting you from the need to refinance at higher rates. A construction loan is available on similar terms as a typical mortgage loan.
Anything with the current market conditions that you can speak to vs. six months from now?
Currently, portfolio lending (versus mortgages that get sold off in the market) has become the go-to option as the volatility in the market is causing rates to spike rapidly and improve very slowly post the spike. Some portfolio lending is becoming harder to secure at regional banks – U.S. Bank is and continues to be committed to our lot and construction products.
Going direct to a bank with great products is allowing home buyers to close on time and guarantee rate locks and approvals. The gravitation towards banks should continue to increase in the next six months as direct lenders and some regional banks find it hard to compete with an increasing cost of doing business, less transactions in the marketplace, and liquidity constraints.
The move to relationship banks will reward clients with broader relationships as opposed to transactions. As a portfolio lender, U.S. Bank looks to create relationships in volatile times in order to pave the way for additional relationship discounts over the life of a client relationship.
What is the best overall advice would you give to today’s lot buyer in Nevada, especially ones who may live out of market?
If you are looking to purchase a primary home or second home, there is no better time than now. The market is not showing signs of dropping [possibly a short stall] before it gains momentum again. People are still leaving California; buying a lot now and preparing to build in the next one to three years allows some time for material costs to cool down and perhaps save on overall build costs.
Being a neighbor to California with lower cost of living and taxes, the time is opportune to invest in a second home that later may benefit from California emigrants as an investment.
What lot-buying trends are you seeing in today’s market?
Most of the lot buyers that we have been working with are move-up buyers buying for the long-term and preparing to build a family home or a dream home. There are also a few that are building second homes in vacation areas where their family spends a lot of time, most if not all are long-term settlers.
What do we need to know about today’s down-payment options for lot buyers?
The down payment for lot loans does not vary much from your typical luxury purchase, in most cases staying between 20-30% down.
How do rates vary if the lot is not intended to be a primary residence?
Even if your lot purchase is intended to be a second home or vacation home, the rate will be the same as it would be for a primary home.
Your thoughts on the advantages of financing over cash?
Financing the lot at record low rates allows your cash to continue to grow or cash to be spent getting the project ready to build. The cash needs of building your own home are often underestimated, and financing your lot can provide you the cash flow necessary to get your project ready to start.
To learn more about lot loans* to finance a premier homesite at Ascaya, contact Zack Cervantes at 951.850.6036 or [email protected].
*Standard maximum of 10 acres; however parcels not exceeding 20 acres may be considered if typical for the area and supported by acceptable appraisal valuation. Lot loans are not intended for investment or speculation purposes. Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rates and program terms are subject to change without notice. Visit usbank.com to learn more about U.S. Bank products and services. Mortgage, home equity and credit products are offered by U.S. Bank National Association. Deposit products are offered by U.S. Bank National Association.
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