Posted by: Roby Robertson | September 22, 2008

Lake Norman Real Estate – Beware of Falling Prices

Lake Norman Buyers, Do your homework with New Construction and Lease Purchase Options

The home mortgage market can be difficult to navigate even in normal times. During a period in which home prices are declining, the difficulties are compounded.  Luckily in the Lake Norman and Charlotte areas our prices are not falling at the rate of other areas of the country.  This fact makes things easier for buyers looking to build or buy with a lease purchase, however  the potential pitfalls should be evaluated and provisions made.

In an article on Inman news by Jack Guttentag, he points out a fact that many do not consider. 

New Construction

Constructing a custom home is very appealing to many people.  It can also be a time-consuming process with delays which cause cost overruns or time delays.

In an example provided by the author, a buyer agreed with a lender on a combination loan. First a  construction loan was approved that would convert into a permanent mortgage upon completion of construction. A 5 percent down payment was required to procure the loan. The construction cost was $1 million, making the down payment $50,000.  At the completion of construction the lender had the house appraised and with the falling market values being what they are , found it was worth only $800,000. This reduced the loan amount to $760,000 and forced the borrower to come up with $240,000 rather than the anticipated $50,000.

The Buyer does not have the added $190,000 to put down, and the house could go to foreclosure without ever being occupied. More likely, the deal will be modified with the lender sharing the loss.

A couple of things that could help prevent this scenario:

  • Make sure the borrower owns the land outright.
  • Borrower has uncommitted monies in reserve
  • Be sure to try and plan for all potential pitfalls with the lender

Lease-to-Own Deals:

A buyer did a lease-to-own deal under which she paid a home seller 2 percent of an agreed-upon price for an option to purchase the house at that price within three years.

The buyer was then informed that the current owner was not making mortgage payments, possibly because of a sharp decline in the property value. While the option to buy the house no longer has any value because the option price is above current market value.  Lawyers consulted on this case indicate that a foreclosure would wipe out the buyers tenancy right meaning the the buyer also loses the right to live in the house. 

There is nothing the buyer can do at this point to protect herself. Those contemplating a lease-to-own deal in the future would do well to avoid deals where the seller’s mortgage is more than 90 percent of current market value. They should also bear in mind that an option to purchase a house at a price 10 percent below current market value is not worth much in a market in which values are declining.

Thanks to Mr. Guttentag on the valuable information that many of us have not considered. Read the entire article.

However, we are very lucky in the Lake Norman area in that our prices are still holding fast with a minimal drop in prices of around 1-2% in some areas and zero in others.   Be sure that you hire an agent that understands the market and can guide you through the process.

If you would like additional information about our fantastic Lake Norman Communities,just call your Lake Norman agent at 704 451 7051 or contact by email.

Why Lake Norman is such a great Destination

Roby Robertson

 

Saving My Clients Thousands

Broker/Owner

 

Real Living In Style
Davidson NC

 

roby.robertson@realliving.com
www.LakeNormanRealLiving.com

 

Ph: 704 451 7051
Fax: 704 892 9766

Committed to Saving My Clients Thousands When Buying and Selling Real Estate


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