MORTGAGE TALK - DREAM HOME

"Home Loans and the Internet" Builder & Remodelor - November 2002

So, you have finally found your dream home, a beautiful, turn-of-the-century, five acre waterfront estate, the home you've always imagined! Well, almost. You find yourself wondering how to blend old world charm with modern convenience. You envision your style and particular taste being applied as you walk from room to room. Questions varying from the adequacy of the lighting, sizes of the dining and bedrooms, kitchen cabinets and that old stove compete for your attention. You clear your head with the reminder that there will always be changes to consider as you put your plans together. Deciding where to start by determining and organizing the right questions is where help is needed.

First, let's begin by finding out what the actual fair market value is. All of the above considerations (dreams) will cost money. We want to be sure that the funds we invest to cover any upgrades beyond the sellers asking price, will be recaptured if we choose to sell in the future. This information is important to have prior to negotiations and seeking financing, as it lets us know how much to spend and borrow. The best approach is to compare the cost of this house, plus improvements, with the value of similar houses and properties in the area. This comparison is called an appraisal, which establishes a fair market value. A local appraiser is your best source for this service. However, if you are currently working with a mortgage counselor, that individual will be able to obtain this information on your behalf.
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Perhaps you are building your dream home. Similar questions about options and upgrades run through your mind. Recently, I spent considerable time with a client who was very concerned about applying for the right amount of financing to cover the upgrades and options for a home he was building. He was questioning whether, after adding the cost of upgrades, the home would still appraise or command the higher selling price necessary to obtain financing. Similar to the buyer of an established estate, this is a concern for buyers of new construction as there are few comparable properties available for review. However, establishing fair market value is absolutely essential in providing a base from which to make prudent decisions. The next step was to contact my appraiser to both make him aware of the upgrades my client was planning, and ask if more value could be given based on the changes. Fortunately, the appraiser could justify the increased value we desired, which allowed my client to feel comfortable with his decisions, and to pursue suitable financing.

After establishing an accurate appraisal, the next step would be to define and explain cost of transaction and mortgage structuring, which I'll talk about next time.

Michele Raab-Francis is the President of Beechwood Capital Company, LLC., 500 North Broadway, Jericho, New York 11753. By phone (516)935-5600 ext 13 for those who prefer to call. Commentary and Questions are always welcome.

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