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Everything You Need to Know About Land Loans

Thinking about building a custom home? If you can’t find the house of your dreams, building your home can be ideal.

All you have to do is finance the process.

Fortunately, you don’t have to have a pile of money in the bank to do just that. Instead, you can take out a land loan.

Land Loan: What is it?

A land loan, also known as a lot loan, is used to fund the acquisition of a piece of land. If you’re interested in purchasing land on which to build a house or other structure, you can get a land loan. The type of loan you choose will depend on where you want to acquire land and how you’ll use it.

Land or lot loans are also a preferable option for potential home builders who have a concept but who might not want to start building and financing a house immediately. If you are worried that your construction has to be delayed or if you’re still finalizing your home plans, then a land loan is probably the best option for you.

How Do Land Loans Work?

You’ll typically need a down payment of at least 25% to take out a land loan.

You’ll need a credit score of 720 or higher to take out a land loan. You may also need to provide your lender with information about how you intend to use the land. This often means conducting due diligence in regard to the property’s existing zoning, land-use limitations, surveyed boundaries, and existing utility access.

This information will help lenders assess the potential risk of the loan.

Lenders adjust interest rates in response to these factors, but regardless, you should expect higher interest rates than you’d see from a traditional mortgage. This is because a land loan is riskier for the lender than a mortgage.

However, if a borrower has superior credit and a lower debt-to-income ratio, they may be eligible for lower rates.

Once the borrower has been approved by a lender and accepted the loan’s terms, they will be responsible for making a down payment and repaying the loan at the decided interest rate.

In addition, land loans typically have shorter repayment terms than traditional home loans. Terms typically range from 12 months to 3 years.

Another option for borrowers, is to convert the land loan into a conventional mortgage after the building of your new home is finished. This will allow them the chance to get a fresh principal balance and a cheaper interest rate through refinancing.

Converting Loans

A land loan lets you secure a piece of land until you’re ready to build. You’ll only have to pay for the costs of holding the land itself.

When you’re ready to start building, you’ll want to convert the land loan to a construction loan. This loan is a 12 to 18 month loan. Your land loan will roll into your construction loan, and the down payment you used on your land loan will be applied to your construction loan.

Your lender then distributes the funds in a series of draws as you complete each phase of your construction process. The money gets paid directly to your builder after a completed inspection.

Once the house is built, you can convert the construction loan into a traditional home mortgage loan. You might also opt for a construction to permanent loan which completes this option automatically.

Get Help With Your Lot Loan

SouthStar Bank has helped thousands of Texans build the home of their dreams on the land of their choosing.

What to Know About the Portfolio Loan Option?

Struggling to get approved for a traditional mortgage loan? Then a portfolio loan might be the the option to help you pave your path to home ownership.

Understanding the basics of a portfolio loan can help you become a homeowner or extend your real estate investment holdings.

A Portfolio Loan: What Is It?

A portfolio loan is a kind of mortgage that a lender would originate and keep in their “portfolio” instead of selling it to a secondary market like a traditional mortgage loan. Due to this process, the lender is able to set more flexible terms for the mortgage, which are frequently to the borrower’s advantage. This allows prospective homeowners who are having trouble being approved for a traditional mortgage accomplish their dreams of homeownership.

In the majority of conventional mortgage loan scenarios, banks and credit unions use a set of governmental guidelines to underwrite and create loans. These rules place minimum down payment requirements, maximum loan amounts, particular debt-to-income ratios, and other constraints on potential borrowers. However, the criteria for awarding portfolio loans can differ significantly, which allows the lender to find the loan solution that is most ideal for their client.

Portfolio Loans Pros

No matter which financial lender originates and underwrites a portfolio loan, the product will always offer certain advantages like:

Delivers a workaround for various rules related to DTI, credit history, and credit score.
They are less difficult to qualify for than other loan types
Could possibly offer quicker or wider access to financing

The Function of Portfolio Loans

Portfolio loans typically have higher loan interest rates and origination fees in exchange for having fewer strict loan approval standards. They might also have restrictions on flexibility and prepayment fees. Lenders frequently seek a higher interest rate on a portfolio loan product since they are free to use any criteria they choose when deciding whether to underwrite the loan.

If you’re having difficulties acquiring a standard loan because of a poor credit score, a troubled credit history, or the fact that you’re self-employed, a portfolio loan might be the best option for you. It might also be a possibility if your debt-to-income (DTI) ratio is high, you need a loan for a home in less-than-ideal shape, or the purchase price exceeds the loan’s maximum amount.

Homebuyers who use a portfolio loan should anticipate a quicker approval process, less stringent upfront conditions, and better customer support from their portfolio lender, who will handle the loan’s direct servicing. Additionally, they should expect higher origination and interest rates, as well as less flexibility with their repayment timeline.

You might want to discuss if a portfolio loan makes sense for you before submitting an application with a mortgage broker, an accounting professional, or a financial expert.

The Bottom Line

Portfolio loans might be a useful instrument for real estate financing because they aren’t meant for resale and don’t have to meet as strict eligibility rules as traditional mortgages. In some cases, borrowers may find them to be more alluring than conventional loan options. However, compared to conventional mortgages, portfolio loans frequently have higher interest rates and fees.

Keely Notes: I have edited this article. Please go back and review the flow of the blog as well as the information. I felt like it was very repetitive, and that we kept saying the same thing just reworded.

Welcome Carlton Payne

Carlton Payne, Senior Loan Officer & Mortgage Production Manager | SouthStar Bank

Carlton Payne joins SouthStar Bank as a Senior Loan Officer and Mortgage Production Manager. Carlton brings with him more than a decade of experience in the mortgage industry with his focuses primarily residing in Portfolio and Secondary Financing. Leveraging his specialized knowledge of Secondary and Jumbo Mortgages, Carlton has become a go-to resource for clients seeking to get their mortgage approved. His efforts have been recognized at previous institutions with multiple top performer trips awarded based around production.

Carlton appreciates that mortgages are often associated with major life milestones and finds it incredibly fulfilling to be able to help individuals and families navigate the complex process of securing a mortgage to purchase their dream home. He looks forward to building new relationships within the community and cultivating these relationships to develop a strong network.

When Carlton finds time away from the office, he can be found spending time with his wife and two children or enjoying a nice day on the golf course.

NMLS#858608

Congratulations Bill Staley! New Branch Executive & Senior Vice President of Lending

Bill Staley has been promoted to Senior Vice President of Lending and Branch Executive of the SouthStar Bank Round Rock branch. Bill has spent just over three years with SouthStar Bank and holds a quarter century of experience in the banking industry. Well versed in all types of lending, Bill holds a great deal of experience in Commercial and Industrial Lending. He is also a strong advocate for small businesses and possesses a strong understanding of the various SBA Loan Programs offered by SouthStar Bank.

In his new role, he is excited to leverage his wealth of experience and serve the Round Rock community and the greater Central Texas Market in an even greater capacity. Bill is focused on ensuring clients and coworkers look forward to working with SouthStar Bank by delivering premier customer service and offering unparalleled expertise in the industry.

Outside of work, you can find Bill at the grill perfecting the culinary science of Barbeque, playing the drums, riding his motorcycles, or tending to his fruit trees. Bill is also involved in the Cedar Park Chamber of Commerce and is due to graduate from their Leadership Program this May. He has also served on the Board of Junior Achievement and was a Board Member for the Breast Cancer Detection Center of Alaska.

America Saves Week: Saving Automatically

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America Saves Week has arrived! America Saves offers a number of helpful resources and tips on how to save effectively. To kick things off we are sharing their article on the importance and effectiveness of Saving Automatically:

Regularly contributing to a savings account is the best way to work toward your future goals…….and the best way to make regular contributions is through saving automatically.

It’s our favorite way to save!

Saving through automatic deposits or transfers is the most effective way to save and helps make it easy by allowing you to choose what and when you’ll save.

How To Start Saving Automatically

First, you’ll want to have a clear view of your finances, so you know what you are capable of stashing away. Start with our list of 6 Steps to Establishing a Spending and Saving Plan. These steps will walk you through gathering your financial documents like pay stubs, utility bills, mortgage statements, etc., and will help you calculate your income and expenses as well as setting goals and making a plan to achieve them.

Don’t worry or get discouraged if it’s not as much as you would like at first. At America Saves, we say Start Small, Think BIG! Even small amounts add up over time.

Once you determine the amount you’d like to start saving, there are two ways to start saving automatically:

Visit your employer’s HR or payroll department and request a split deposit. Most companies will allow for more than one account to be set up for payroll direct deposit. Redirect your set savings amount into a designated account separate from the rest of your paycheck. Complete the necessary paperwork and let your employer do the rest.
Set an auto transfer from your checking to savings at your bank or credit union. Choose the amount to transfer and a day of the week or the month (maybe the day after payday or at a time when there aren’t other debits hitting the account) for the transfer to be made and watch your balance grow! Most financial institutions’ online banking systems will allow you to set up a transfer with just a few clicks. If not, pay a visit to your local branch and ask for assistance.

No matter how you choose to save automatically, the most important thing is building the habit of saving – there is no amount too small to save!

Saving is a Habit, Not a Destination

That’s right – Saving is a Habit….and, practice makes perfect!

By definition, a habit is something you do on a regular basis consistently until it becomes second nature. Eventually, it will become something you do automatically without even thinking about it.

Saving is no different!

A series of small steps, like setting up a direct deposit or auto transfer, can get you closer to your goal and lead to big rewards in the long run.

Every step matters – no matter how big or how small. The more you do it, the more likely you are to stick with it.

Read more and view all the resources America Saves has to offer here: Home | America Saves

SOURCE: America Saves

Congratulations Brent Gibbs & Cole Schindler! New Central Texas President & CEO

collage 90 — L: Brent Gibbs R: Cole Schindler

The SouthStar Bank Board of Directors is pleased to announce the promotion of Brent Gibbs and Cole Schindler to the positions of Central Texas President and Central Texas CEO.

Brent has worked in banking for 26 years, with this being his 13th year with SouthStar Bank. Brent is an alumnus of Texas Tech University and the Southwest Graduate School of Banking. He began his career at SouthStar Bank as the original Branch Executive and Senior Loan Officer for the Southwest Austin branch when it opened in 2011. He was later promoted to Chief Lending Officer and has served in that role since 2018. He became a SouthStar Bank Board Member in 2021 and continues to serve in that capacity.

As Central Texas President, Brent will be a critical liaison between the credit/lending functions and the Board. He will be involved in helping manage the Bank’s profitability and will assume responsibility for monitoring and managing SouthStar Bank’s strong credit and earnings. Brent will also administer SouthStar Bank’s specialty lending programs – working directly with the credit, lending, and compliance departments. In his new position, Brent will be working directly with David Kapavik and begin assuming duties and responsibilities held by him.

Cole has served SouthStar Bank for 20 years. He received his MBA in Communications with a specialization in communication studies from St. Edward’s University in 2004. Cole began his career in banking as a teller and bookkeeper and continued to work his way up in the industry, joining SouthStar Bank as a Credit Officer and eventually developing into a Senior Loan Officer. Until his most recent promotion, he was an EVP/Strategic Development Officer/Senior Lending Officer. He became a SouthStar Bank Board Member in 2007 and continues to serve in that capacity.

The Schindler and Brown families have owned a majority interest in the Bank through Southern Bancshares Holding company since 1981. Cole is a third-generation family member to hold a key leadership role at the Bank.

As Central Texas CEO, Cole will take on a much more significant role in the vision and strategic development of SouthStar Bank’s growth and success. With his knowledge and experience at SouthStar Bank and involvement in the main ownership group, he is uniquely positioned to advance the organization. Cole will work directly with the executive team and current CEO/President David Kapavik in a broader role, leading the Bank’s overall direction.

The Board and executive management are excited by the vision and energy Cole and Brent bring to SouthStar Bank’s future. Their ideas and dedication will be instrumental in helping navigate the Bank in our ever-changing environment.

Member FDIC | Equal Housing Lender | NMLS# 793687 | NMLS# 627914