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Ask The Lender – Bridge Loans

Brent Kohn

Brent Kohn VP Loan Originator NMLS #554361

Spring is upon us and so is the search for that new home.

  • Are you tired of finding the perfect home for you and your family only to see it slip away at the last second because you need to sell your current home first?
  • Perhaps you are just dreaming about upgrading or even downsizing your current home but don’t think it is possible to buy a new home without selling your current home first?

If so, I want to let you know that your dreams can come true here at Citizens National Bank by taking advantage of a bridge loan. A bridge loan is a temporary note taken out against the equity in your current home. You are able to convert your home’s equity into cash to use for the down payment and closing costs of the new home you are trying to purchase.

Typically the bridge loan is written for a short period of time, usually 10-12 months. It is designed to “bridge” the gap between buying your new home and selling your current home. Often times you are required to pay interest only on the bridge loan on a monthly basis. Once your existing home sells, the bridge loan is paid off and any remaining proceeds from the sale are distributed to you. You can even use the bridge loan to pay off your existing first mortgage loan to get rid of that higher monthly obligation. This would allow you to temporarily keep your monthly obligations as low as possible on your current home while taking out a traditional mortgage and principal and interest payments on the new home.

Factors to consider when looking into a bridge loan are:

  • Are you willing to take on the additional monthly obligation on both homes? Even though the payment is just interest only and is relatively small in comparison to a traditional loan, are you willing to make those payments on both homes?
  • Can you qualify to make both payments on both homes with your current income?
  • Do you have enough equity in your current home to take out a bridge loan? Typically lenders want to see that you have at least 20-25% equity left after you take out a bridge loan.
  • Are you willing to pay the costs of an appraisal, title search, recording fee, etc for a temporary bridge loan? How important is it to you to not lose out on the purchase of the new home?
  • How quickly are homes selling in your area? You don’t want to take out a temporary bridge loan and not have your home sell in 10 months. If this happens then you are faced with the additional cost of “renewing” your bridge loan for an additional term.

A bridge loan is a great product to use to help make your dreams come true, but it may not be for everybody. Consult with your Citizens National Bank loan officer to find out if a bridge loan is right for you.

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Ask the Lender – Calculate the Costs

There are a lot of factors to consider when determining the costs of purchasing a home. Fortunately, our website, cnbohio.com, has a variety of mortgage calculators available for you to input different scenarios in order to understand what makes the most sense for you. These interactive calculators are easy to use and address many different questions you may have, such as “What’s the Maximum Mortgage I qualify For?”, “Should I Consider a 15 Year vs. a 30 Year Mortgage Term?” and “Should I Buy Points to Get a Smaller Monthly Payment?”. These calculators are a good starting point as you begin to look at your finances and work with your lender.

Here’s a list of all the Mortgage Calculators available on our site. Check them out:

Information and interactive calculators are made available to you as self-help tools for your independent use and are not intended to provide investment advice. We cannot and do not guarantee their applicability or accuracy in regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.

-See more at: www.cnbohio.com/AboutUs/CNBNews/CNBConnection/Default.aspx

Ask the Lender – How Do Construction Loans Work?

Andrew Rager

Andrew Rager | NMLS #554353

Many people dream of one day building their own home. Choosing floor plans, trim packages, and paint colors can be fun and exciting. Finding a way to finance a home build can be daunting and difficult. Most people cannot afford to pay for the cost of home construction up front, and getting a mortgage can be complicated. After all, you’re asking a bank to give you money for something that doesn’t even exist yet. A standard mortgage loan is not an option as it is designed to finance an existing or finished home. You will need to obtain a construction loan to finance the project during the building process.

A construction loan is typically a short-term line of credit used to pay for the cost of building a home. It may be offered for a set term (usually around a year) to allow sufficient time to build your home. At the end of the construction phase, when the house is complete, you will need to refinance the construction loan and obtain permanent financing.

Once you are qualified and approved for a construction loan, the lender begins disbursing the money to the builder as the construction progresses. These disbursements are called “draws”. Draws are designated intervals at which the builder can receive the funds to continue with the project. There may be several draws throughout the duration of the build. For instance, the builder may get the first 10% when the loan closes, and the next 10% after the lot is cleared and the foundation is poured. The next disbursement of money may come after the house is framed, and then the subsequent payout after the house is under roof.

The number of draws and the amount of each is negotiated between the builder, the buyer, and the bank. It is common for the bank to require an inspection at each draw request before releasing the money to the builder. This helps to ensure that everything is on track and that the money is being spent as it should.

With a construction loan, as with all other loans, you must pay interest on the money you borrow. Typically, construction loans require monthly interest-only payments. The construction loan is a line of credit so you will only pay interest based on the amount borrowed throughout the construction phase.

Building a home can lead to a level of satisfaction that you can’t achieve through buying an existing home and enables you the ability to tailor-make a home to fit your specific needs and desires. If you have the financial ability and partner with a lender who possesses the tools and experience needed to help you through the process of a construction loan, you can achieve what so many dream of – building your own home.

If you’re interested in discussing a construction loan, contact a mortgage lender at CNB. We’ll be happy to meet with you to walk you through the process.

Ask the Lender – What is an SBA Loan?

Brock Burcham, SVP/Springfield City President

Brock Burcham, SVP/Springfield City President

The Small Business Administration, SBA, offers many types of financing programs geared towards aiding small businesses in growing or starting a business. How these programs work is that the SBA guarantees up to a certain amount of the loan so the bank has less risk in taking on the loan. Citizens National Bank is an approved administrator of SBA loan programs. What that means is the business owner works directly with a lender at our bank and we complete the paperwork to apply for those programs as needed. There are 3 main programs CNB works with: SBAExpress, SBA 7A Guaranteed Loans, and the SBA 504 Loans.

  • The SBAExpress is geared toward small business loans of less than $350,000. The purpose is to start or grow a business. Applications are responded to within 36 hours.
  • The SBA 7A Guaranteed Loan has a maximum loan amount of $5 million. The purpose is to establish a new business or assist in acquisition, operation or expansion of an existing business. Both fixed and variable interest rate structures are available.
  • The SBA 504 Loan has a maximum loan amount of $4-$5.5 million depending upon how funds will be used. It must support one of three goals; job creation, public policy or small manufacturing. Maturity terms of 10 and 20 years are available.

To determine whether or not one of these programs will benefit you, simply contact a CNB business banking officer and discuss your goals for starting or expanding your business. Once we review your financials and business plan, we’ll consider whether SBA financing is a viable option. To learn more about how SBA loan programs work, view our video.

 

Ask the Lender – Should I Buy a Home or Continue to Rent?

If you’re considering purchasing a home, now might be the time. With the Fed recently raising rates and indicating they plan to again this year, interest rates on home loans will begin to tick up. However, that shouldn’t be your only deciding factor in jumping into home ownership. You’ll need to take into account the cost of home owner insurance and property taxes, as well as Private Mortgage Insurance (PMI) if you won’t have 20% to put towards a down payment. Home ownership also comes with maintenance and you’ll want to consider those costs, as well as the time involved in activities such as mowing a lawn, that may currently be taken care of by your landlord.

The positive side of owning your own home means you’ll have a long term investment and you have something to show for those monthly payments. Also, according to rentalhousingjournal.com, 2015 had the highest rent prices in recent history as demand for rentals continued to grow, so your house payment may indeed be less than what you’re currently paying in rent. On a national average, renters can expect to spend 30 percent of their income on rent, while buyers can expect to spend 15 percent of their monthly income on a mortgage payment. Buying a home is one of the biggest decisions you’ll probably make in your lifetime. Make sure you’re comfortable with your finances and understand the total cost of home ownership by using our Rent vs. Buy mortgage calculators. This calculator helps you weed through the fees, taxes and monthly payments to help you make a decision between the two options. When you’re ready to purchase, contact a Citizens National Bank mortgage lender to help you through the application process and understand the mortgage options available. – See more at: www.cnbohio.com/Personal/Loans/MeetOurLenders/AskTheLender/Default.aspx

If you would like to submit a question for this column, email info@cnbohio.com.

Ask the Lender? “Should I switch my credit card machine to accept chip enabled cards?”

Jason LaBounty VP Business Banking Officer

Jason LaBounty
VP Business Banking Officer

EMV (Europay, Mastercard and Visa), or chip enabled cards, are common place in most foreign countries and provide a higher level of security against fraud than the magnetic stripe cards seen most frequently in the US. On traditional credit cards, the magnetic stripe holds the information necessary to make a transaction and that information never changes, so if stolen it can be used to make new cards or online purchases. With the EMV card, the computer chip in the card creates a unique transaction code that cannot be used again. According to creditcards.com, “If a hacker stole the chip information from one specific point of sale, typical card duplication would never work because the stolen transaction number created in that instance wouldn’t be usable again and the card would just get denied.”

Until last year, most companies had not felt an urgency to switch to the chip enabled cards simply due to the expense of reissuing cards and trading out credit card machines for upgraded models. Unfortunately, the large breaches we have seen with Target, and then Home Depot, have brought the need for more heightened security for credit cards to the forefront. As of October 15, 2015 if a company that accepts credit card for payment does not accept EMV cards, the liability for any loss will shift to that company rather than the credit card issuer.

For this reason, it is in your best interest to upgrade your merchant credit card machines to accept the newer cards. You will have some initial cost in replacing your machine. Locally the cost to purchase the new machines range between $300 and $500. While not cheap, this investment will insure you do not take the hit for a fraudulent transaction, which could easily exceed the cost of upgrading with just one incident.

If you are interested in learning more about accepting credit card payments at your place of business, contact a business banking officer to discuss our Merchant Services Program.

Ask the Lender: “What is a credit score, how does it affect my loan and how can I improve it?”

Michael Dulle Elida

Michael Dulle Elida Branch Manager, MLO #1210669

The first question I often hear, especially from first time home buyers is “What is a credit score, does it affect a loan decision, and how can I improve that score?”. A credit score is a three digit number, which is calculated from your credit report and is one factor lenders use to determine your credit for a loan or credit card. This score can affect whether or not you are approved, and what interest rate you will be charged. A credit score can range from a low of 300 to the highest of 850. A credit score is important in the consideration on a loan, but is not the only factor in a loan decision. The top three credit bureaus in the United States are Equifax, Experian, and TransUnion.

There are five areas that calculate your credit score and the weight it affects the score.

  • Payment History (35%)
  • Amount Owed (30%)
  • Length of Credit History (15%)
  • Types of Credit Used (10%)
  • New Credit (10%)

To improve your credit score make sure that you always make your monthly payment on time. Missing a payment or being late on even one payment can affect the score quickly. Also make sure the balances you have on your credit cards are lower than 30% of the credit limit. Carrying over the balances of the credit card on a monthly basis is dangerous to your score. Lenders look at the credit history to show the experience people have with loans. The longer you have the account the higher the score will be. If you do not use an account (credit cards) and want to cancel one, cancel one that was opened the most recent. Closing one that you had the longest, removes that history from your credit report.

Make sure you have a mix of credit on your credit report. A mix of credit shows experience of different account types. Sticking with one type of loan can hurt the credit score. Finally taking out too many new credits too quickly can hurt the credit score – this can also include the number of credit inquiries lenders use in the application process. New credits and new inquiries are considered a range of six to twelve months. If you are shopping around for the best rate try to keep the search in more than one month. There are multiple websites where you can view your credit report on a monthly basis. You may get a free yearly credit report at www.annualcreditreport.com. It is important to review this report to be sure there are not fraudulent charges or incorrect reports of credit you owe that could affect your score.

– See more at: http://www.cnbohio.com/AboutUs/CNBNews/CNBConnection/Default.aspx