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BlogSeptember 20215 Smart Money Moves for Buying a Beach House

5 Smart Money Moves for Buying a Beach House

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Our banking experts can help you find affordable ways to make coastal home dreams come true.

Our lending partners have helped countless families finance coastal homes. With options for new construction on the horizon at Cinnamon Shore, we asked our experts to share popular and advantageous ways to finance beachside property and build.

Here’s what Steven D. Johnson of Regions Bank in Austin, Jenni Gill of Bancorp South in Austin, and Katie Kuykendall of American Bank in Port Aransas want buyers to know.

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No. 1   Low Interest Rates Make It a Great Time To Buy Coastal Property.

If you finance your homesite purchase, today’s interest rates make it more affordable to invest. When it’s time to build, you can lock in construction loan rates and then mortgage rates ahead of building completion. Steven, Jenni and Katie all emphasize that there are various timeframes and ways to lock in rates and avoid fluctuations in the market, especially when you can reserve a homesite well ahead of construction. That's the situation homesite buyers find now at Cinnamon Shore. So, ask your banker about different options.

Bancorp South, for instance, offers two helpful options:
     1. Once the plat is finalized, you can purchase the lot on a 12-month, interest-only loan, a 3/1 or 5/1 Adjustable Rate Mortgage (ARM), or a 10-year fixed rate loan. "This allows buyers to invest in the land and work on home plans later," Jenni says.
     2. Purchase the homesite and do the construction loan all in one, with a 20% down payment. "This will allow you to lock in your rate today for your construction phase and your permanent  phase," Jenni says. In that scenario, homeowners must quickly start work on home plans to get through all the steps before construction begins.

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No. 2. Paying Cash for a Homesite Has Big Advantages.

You’ll avoid paying interest on the property itself, of course, but you’ll also be ahead of the game when it comes to financing construction later. “When it’s time to look at the construction loan, you can say, ‘I already own the land free and clear,’” says Katie. “That’s equity that buyers already have to use toward the construction loan.”

For instance, at American Bank looks at the total value of the property to determine the amount of a construction loan, lending up to 75% of the total value. If a buyer pays $250,000 for a homesite and the construction estimate is $1 million, the total value is $1.25 million and the bank could approve a loan up to $932,500. If the buyer does not yet own the property outright, the bank could only lend 75% of the $1 million construction loan estimate, or just $750,000. 

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No. 3. To Pay Cash For A Homesite, Many Buyers Rely On Home Equity From A Primary Residence.

According to Katie, second-home buyers can take a home equity loan at today’s low interest rates from a permanent residence to generate cash for a homesite purchase. Steven adds: “In lieu of a lot loan, pay cash for the lot by using equity from a current residence with a low closing cost cash-out refinance,” he says. “This way, buyers get a lower rate and save in lot closing costs.”

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No. 4.  Construction Loans Only Require You To Pay Interest on Funds As They’re Taken.

Construction loan funds get doled out to the builder month by month, as needed. "During the construction phase you will pay interest only on the amount already drawn month to date," Jenni explains. That's helpful as you’re preparing for other costs related to furnishings and interiors.

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No. 5. Some Banks Offer One-Time Close Options.

Both Jenni and Steven tout the advantages of the one-time close—including paying only one set of closing costs. The Bancorp Construction Permanent Loan allows 12 months from close to complete the project, but Jenni says, “We understand the nature of construction delays, and we often allow for extensions.” Adds Steven, “The one-time close is 100,000% superior to the two-time close.” and he points to Region’s Construction to Permanent Loan Program. “Borrowers can lock in today’s rate just as soon as we get an executed construction contract, before construction starts instead of waiting till they’re within 60 days of completion."

These programs have many advantages, such as only one set of closing costs, but they require advance planning. If you reserve a homesite and start home plans immediately, you’ll have time to complete the steps required before construction can start and to reap the benefits of a one-time close. Steps include home design, design approval, builder selection, builder contracting, loan application, and home design appraisal. "With pre-sell lots as far in advance as ours, buyers have a great opportunity with this type of financing, but they must act quickly,” Jodi Peters, managing broker of Cinnamon Shore Realty.

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Another Strategy: Join the Vacation Rental Pool 

Not only does Steven help families finance their property purchases, he's a Cinnamon Shore property owner himself, with residences at North and property at the newest village, Cinnamon Shore South. "We're big fans of Cinnamon Shore," he says. He can help homebuyers understand how the rental pool income can make owning a vacation home more affordable. His home at North is part of the Cinnamon Shore Vacation Rental Pool, and he plans to add the newer home at South to the rental pool, as well. "We've done very nicely with the rental pool," he says.

In 2020, a three-bedroom averaged rental income of $83,000, while a six-bedroom earned an average of $200,000. Bookings and rental revenues increased in 2021, which bodes well for the potential of future residences that join the rental pool at Cinnamon Shore.

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Contact Our Lenders To Discuss Your Options!

Bancorp South Mortgage: Jenni Gill, Condos/Construction/Homes, 512-687-2100, 512-659-0207, [email protected]

Regions Bank: Steve Johnson, Lot/Land Financing, 512-789-5329, [email protected]

American Bank Port Aranas: Katie Kuykendall, Lot/Land Financing, 361-749-7450 Ext. 7457, [email protected]

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JOIN OUR PREFERRED BUYERS LIST

With our newest phase still being prepped for construction, you can reserve a homesite this Oct. 9 during our “Come Home to Cinnamon Shore” Weekend. Even though buyers will wait to close transactions until the plat is final months from now, Jenni Gill of Bancorp South recommends buyers get prequalified for their loan. “You can lock in a rate usually for 60 days, and then request extensions,” she says. While you wait for construction to start, you’ll have time to finalize your home design, interview builders, and get estimates for the construction loan.

To Select Your Site on Oct. 9, Register to Join Our Preferred Buyers List by registering HERE.
You’ll receive pricing and assistance from our agents. Then, just text or call with your property selection on Oct. 9!

Not Ready to Join But Want To Learn More? Flip through our brochure about owning property at Cinnamon Shore. Download HERE.

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