Financing your Outer Banks Property

A few years ago obtaining a loan was as easy as signing your name a couple dozen times at the closing table. Lenders were anxious to give money to just about anyone. Probably the best example of a loan program that epitomizes this lending time period was the NINA loan. NINA means no income and no asset verification. In fact National Public Radio reported on their radio show “This American Life” that in Ohio 23 dead people were approved for this type of mortgage. Of course since then the financial markets have been through a dramatic downturn and lending practices have changed. This article will not focus on who is responsible or dwell on past mistakes. It will focus on what loan options buyers have today and what current owners should be doing in these market conditions.

The mortgage banking industry is in a state of change right now. David Joyner, a mortgage broker for Planter’s Mortgage, recently stated, “Today there are daily changes in the Outer Banks mortgage industry, so talking with a local lender is a good idea.” What is changing? As expected, lending practices have tightened up over the last 18 months. The NINA loan has gone the way of the dinosaur, and local lenders are taking a closer look at a buyer’s ability to pay back loans. Lenders today typically want the buyer to put 20% of the purchase price into the second home purchase at closing. Buyers with credit scores above 720 have a much better chance of qualifying for a purchase at the best rates.

Money is still available for those people with good credit. This is especially true at the conventional loan limits. Rande Eure, a mortgage broker for Beach Mortgage, recently stated, “Conventional financing is readily available for people who qualify and can put 20% down.” In this area this maximum loan amount is $417,000. For homes where a loan above that amount is needed, there are quite a few different options. One common option for homes less than a million dollars is for the buyer to get additional financing in a second loan. There are also affordable loan programs for buyers who are looking for a home more than a million. Each local lender has unique types of loans. It is likely that a lender on the Outer Banks has a loan program that will fit the needs of a buyer with good credit and a decent down payment. Your Realtor should be happy to call around and find you a few different options regardless of your price range.

Unless you are paying cash when buying an Outer Banks home, not only are you preparing for years of enjoyment but you are also obligating yourself to years of payments. Lower interest rates make a big difference in that monthly obligation. For example the principle and interest on a $417,000 30-year loan at 6.5% is approximately $2,636 per month. That same amount on a 30-year loan at 4.5% is just under $2,113 per month. This is equivalent to having a 6.5 mortgage for 30 years on just $335,000 instead of $417,000! Amy Hill, a mortgage broker for American Way Mortgage, recently stated, “Conforming rates are just great!” As of this writing, the interest rate on a conforming, 30-year loan is approaching 4.5%. Buyers have an opportunity right now to obtain a property priced well below the market highs of a few years ago and borrow money at historically low rates!

There is also good news for current Outer Banks property owners. Owners with adjustable rate mortgages should be getting some relief. Over the last few years these owners have been shocked by the increases in their payments as rates went up. Now some owners who have been expecting an increase in their ARM may actually get a reduction. The LIBOR rate is now lower than it has been in years, and many adjustable rates are tied to this index. Owners with both ARMs and fixed rates also now have an opportunity to refinance at an even lower rate. As long as there is enough equity, buyers who purchased in the past five years can save thousands over the life of their loan by refinancing now.

Using an Outer Banks lender makes more sense today than ever. Local lenders are familiar with the different nuances found in this resort market. For example, they are used to seeing the furnishings selling by separate bill of sale with vacation rental homes. Some out of town lenders will put a higher value on this personal property causing a buyer to make a larger down payment. Also, they are familiar with the flood zone issues. Occasionally an out of town lender will refuse to lend on a property when they discover it is in a flood zone even though flood insurance is available. They also know local appraisers. Out of town lenders sometimes will hire an appraiser from another area of North Carolina who is unfamiliar with Outer Banks prices. Also, you will find local lenders’ rates competitive with lenders from other parts of the country.

In this current unsettled economic climate, financing conditions will continue to change. Recent changes are certainly in favor of the buyer with good credit. This may just be the opportunity buyers have been waiting for.