August 16, 1998
Topic: Financing the Home and Remodel
Guest: Kyle Becraft of Sandy Spring Mortgage
David Berg sitting in for Charlie Warren who is on vacation.
ELAINE: if you’re thinking about any type of financing for your home or for a remodeling project, you need a reliable information and a trustworthy person and company…Kyle Becraft is that person…he must be doing very well; he’s done 165 settlements between January and June…30 milion dollars…which came first, the chicken or the egg; if I tell people when you remodel you need to know what you can afford…Kyle: In your innovation program, people come in and want to make a major or minor remodel…Elaine: I say, "How much can you afford to spend?"…Kyle: Customer might ask, "I want to do this project, where do I start?" Well, I can start you with the financing… yes you qualify for X amount…Elaine: I know callers would like to ask questions…David: What’s the biggest loan you ever gave for a remodeling project?…No big number?
Elaine: Kyle specializes in home additions loans…remodeling is hot!…Kyle: Many clients come into the bank now who do not want to move out of the neighborhood…we want to make a major addition…$25,000…first we have to figure how much is the home worth?…Elaine: What is a home worth…I might say it’s worth a million!…Kyle: What did a neighbor sell their home for? Bottom line, we’ll send an appraiser out…look at home, compare to comparable sales in that exact area…will come back and say your home is worth X amount of money…take your addition, add it to the home, send the appraiser back out and see when the work is complete what will the home be worth…Elaine: So we go with the idea that the home will be more valuable…what’s the max amount I can get?…Kyle: We can lend up to 95% of the total value of the home…95% of the new value…appraisal can allow financing of all costs…Elaine: I have then, a secured loan and a tax advantage…that.s really good!
David: When they have these plans do you review them, approve them?…Kyle: We review them from the bank point of view…not building a home in a neighborhood that won’t have market appeal…David: Have you ever turned down a loan request because of the design? Kyle: Yes…one example, people were building what looked like a barn in a colonial neighborhood…David: What’s to prevent them from building through another lender?…Is there an association that will stop that? Kyle: It’s up to the lender…if the bank would like to have a barn in the area, they may do that…Elaine: The covenants would say, "No,no, no!" to that…let’s move to new construction…Kyle: Lot construction loans longer than I’ve been there…Bethesda area doesn’t have a lot of raw land left…lending in Carroll County, Frederick County, Howard County, Montgomery…been on Wisconsin Avenue lately…really building...
Elaine: The last time we were on the air together, David, you asked about a condo that you happened to own…David: My problem was my wife and I were recently married, moved into her condo and now her condo is not worth what she paid for it…Kyle: You can sell and give out-of-pocket the deficient balance…rent it and hope the market comes back…creates another problem; condo project where rentals are more than 50%, gets more difficult to place a loan…Elaine: In paper today, because of new tax law, people might sell to properties to buy a more convenient property, maybe a condo…soyour property value may come up.
CALLER: KAYJA (CLARKSBURG)… Sandy Spring denied building loan because they didn’t think it would be a marketable property…got financing with another company and built two homes that will settle very soon…annoyed…arbitrarily decided these lots were not buildable lots!…Elaine: When you look at a lot, what do you consider?…Kyle: Did you have lots that needed to be subdivided? Kayja: They were already subdivided…reason was a stream going through property…grade going down, over half acre lots…Montgomery County okayed them, I couldn’t see why you wouldn’t; Montgomery County so stringent…Elaine: Kyle is sitting here shaking his head…Kyle: Don’t know why…Kayja: I was going to send this gentlemen a copy of the settlement sheet!
Kyle: No, you don’t have to do that! Are you a builder?…Kayja: Yes…spec house…Kyle: For a long time we were the only lender to spec builders in town, but we’ve been looking at them a little more cautiously lately.
Elaine: All depends on the circumstances…Kyle: Yes, I am in the residential part of our bank, and that questions probably came from our commercial end…Elaine: If I as a consumer want to buy a piece of property, I want to make sure I can come to someone like you and get a loan…what are the things we need to look out for…Kyle: At the time, I can say "Here are my concerns; what are yours?"…David: What are your concerns?…Kyle: Marketability of the home…location…bottom line is: I have the money…our guidelines are pretty open…make loans that others refuse to look at…David: What about the barn?…Kyle: The guy wanted to live in a barn…if we had to foreclose on a property like that it would be ours and put into our portfolio…
CALLER: ALLAN (POTOMAC)…HAVE A STRANGE QUESTION…BANK OR SAVINGS AND LOAN MIGHT SAY THERE’S NO MONEY AVAILABLE, BUT A MORTGAGE BANKER WILL SAY THERE IS MONEY…AND THEY’LL PLACE THE LOAN IN A BANK THAT SAID THERE WAS NO MONEY AVAILABLE!…Kyle: Sandy Spring will entertain your inquiry…Allan: Second part of the question, how can a bank say there are not closing costs?…Kyle: There are always closing costs…nothing free…known that our whole lives…the bank or broker may be picking up the costs for you by charging a higher interest rate than is on the market today…ALLAN: TRANSLATES INTO POINTS OR HIGHER INTEREST RATE…OR BOTH…WHAT DO YOU PROJECT OVER NEXT YEAR…Kyle: We’ve been balancing on twenty year lows for about seven, eight months now and I think if you’re guessing they are going down, you’re a minority now…ALLAN: elections are coming and that’s invariably what happens…politicians come into play.
Elaine: Stayed during the break… that was great! Call during break… when you have a small balance on a home equity, and would like to do work on a house, what is the best way to proceed?… Kyle: Go back to that home equity loan and we can right now take that equity loan, refinance and turn it into a new first mortgage…find out what was done originally with the home equity loan…most were credit lines with a prime rate plus some number…may be better to refi and pull up some extra money for the home improvement he had in mind…Elaine: What are present rates?…Kyle: Fixed rate is in the very low 7% range…conforming loan, borrowing under the amount of $227150…over what they would classify a Jumbo Loan over $227150…when you get into that higher anount, rates go up a little bit.
CALLER: MARY (ALEXANDRIA)…BETTER OFF TAKING MONEY OUT OF CD FOR HOME IMPROVEMENT OR TAKING OUT A HOME EQUITY LOAN AND DEDUCTING INTEREST?…Kyle: Might be a question for your accountant to handle for you…how much?…MARY: ABOUT $20000…Kyle: How much do you owe on your home today?…MARY: ONLY ABOUT $15000…Kyle: We would love to lend you the money!…Elaine: What is your return in interest on the CD?…MARY: 6%…Kyle: That actually sound pretty good…is that on a longer term?…Mary: Maturing in November…Kyle: From a point of view of your mortgage, maybe you would like to have deduction and we could lend you the exact value and later if you don’t want a mortgage and your CD matures, you could pay it off…Elaine: I always like some sort of deduction…
CALLER: ED…HAVE 7/23 MORTGAGE THAT WILL MATURE ON THE SEVENTH YEAR IN DECEMBER OF THIS YEAR; ORIGINALLY GOT THE MORTGAGE AT 7.5/8%; WILL IN SEVENTH YEAR RESET AT T-BILL RATE PLUS 1 OR 1.5%…SHOULD I WAIT UNTIL DECEMBER OR REFINANCE NOW?…Kyle: I strongly recommend you refinance today…how much do you owe?…ED: ORIGINAL LOAN WAS $180000…Kyle: Okay, so it was a conforming loan..current rate 71/8%…rate today better…December rate is unknown…look at your note for T-Bill rate; some are 5/8% over that mandatory delivery rate on a mortgage…is it one year, three, five year treasury bill…look at your note…there will be fees…$500 or more and rate higher than market.
CALLER: JOE (ELLICOTT CITY)…CONTEMPLATING DOING SOME RENOVATION…ADDITION WITH A KITCHEN…IF MY DECISION ON A CONTRACTOR WOULD HINGE ON THE DECISION FOR THE BANK TO LOAN ME MONEY…Elaine: Oh, good point…does a contractor effect whether or not you"ll get a loan?…Kyle: There are two answers: depends on the size and scope of your project…if I were to loan money based on the current value of your home you may do what you want; if you want me to look at your home and tell you your future value based on your addition… makes my loan work or not work, then I am very interested in who you’re working with…when you come to Sandy Spring and want to do a big home addition, we’re going to underwrite the builder you’ll be using; we want to know experiences their clients have had…Elaine: That’s another way for our clients to know if they’ve chosen someone who will do right by everybody! Kyle: We hope they do right, and past performance generally will dictate that…David: Do you have a list that you see and get an alert…Kyle: We know at the bank and might say, "We’d rather you look around….You might want to look into your builder a little bit more…" JOE: IS THERE A DOLLAR FIGURE?…Kyle: Up to 75% of the value of your home. Elaine: I wanted to add to your question because you were saying if I spend ‘X’ amount of dollars, will the bank tell me if this contractor will do right by me…some of us think if I spend $25,000, in the eyes of somebody else, it might not be a lot of money, but in your eyes, Joe, it may be, and I asked Kyle what Sandy Spring could do to assist Joe in reassuring him he’s selecting the right contractor even if it’s outside your guidelines for money…Kyle: Joe, does that sum it up for you?…JOE: GOOD POINT THAT ELAINE MADE; JUST HOW INVOLVED WILL THE BANK BE IN MY SELECTION?…Kyle: We are involved; we like you to do your homework, but we’ll run a background check…Elaine: Do you have to ask the bank to do that ?…Kyle: Done automatically…Joe with a kitchen you could be looking at changing the face of the cabinets to completely gutting with a potential ticket of $25-30000…David: Wild question; do you prefer gas or electric ranges?…JOE: GAS…David: I don’t know where that came from…
Elaine: Sandy Spring as well as Columbia Bank are community banks…Kyle: Joe, you are definitely in an area we like to lend…many times I can have the appraiser come and say you’re putting too much money into a home and that is definitely information I’ll pass on to you!
CALLER: JOHN (VIRGINIA)…MY HOME WAS WORTH $175000, OWE $80000, AND GOT A HOME EQUITY LOAN OF $65000…NOW I WAS WONDERING IF I SELL THE HOUSE DO I HAVE TO PAY CAPITAL GAINS TAXES ON THE $65000?…Kyle: That’s a question for your accountant, not a banker. What did you pay for the house? You may have borrowed in excess of what you paid for the house…JOHN: I DID; BUILT FOR ABOUT $75000…Kyle: So you have $145000 on a basis of $75000…you’ll have capital gain…Elaine: Are you retired?…JOHN: STILL WORKIN’!