It’s not news that the Wilmington area is seeing a strong demand for home mortgages. What may come as a surprise, though, is the increasing number of potential buyers who are seeking mortgage loans to support real estate investments.
Chris George, PNC’s senior vice president and regional manager in Wilmington, notes the return of the home flipper.
“Some time ago, people would buy homes, fix them up and resell them. Since the recession, that kind of went away. We’re starting to see it again in our area here. It’s not too prevalent, but it’s interesting starting to see people using real estate as an investment again,” he said. “We see this as an indicator that the economy is strengthening.”
Mark Johnson, New Hanover County market executive for Sound Bank, has witnessed the same uptick in applications for mortgages to finance real estate investment. He thinks perhaps people want to spread out their investments.
“I believe people see real estate as a good investment. They are not necessarily scared of the equity markets, but they’re seeking to diversify. They are seeing the appreciation of real estate in this area,” he said, adding that the number of inquiries Sound Bank receives from potential investors has increased.
“They find a property in downtown Wilmington, for example, whether commercial or residential, to either hold or to fix up and resell. We are seeing quite a bit of that,” he said. “For the past two-plus years Sound Bank has done [mortgages for] a number of investment properties, and we get calls for that constantly.”
Sound Bank also makes loans for renovation, ultimately wrapping them into mortgages for property purchase, according to Johnson.
“Here’s an example: A fellow downtown bought a condemned house that the city was going to tear down. It was a beautiful house, but it needed to be gutted, and he is doing that. We provided financing for the complete renovation of that home through a line of credit. When the work is done, that loan will convert to a conventional P&I loan.”
Mark Vernon, a mortgage consultant with On Q Financial in Wilmington, said each mortgage lender’s experience may be different. Unlike George and Johnson, he’s witnessing a slowdown in house flipping.
“A lot of people have been doing [house flipping] the past couple of years. As the economy has strengthened, more people are interested in doing that, but they have a hard time finding properties,” he said. “The actual inventory that is available has waned, so we have not seen a pickup [in those mortgages], but there is steady desire.”
Vernon has, however, seen an increase in another real estate investment phenomenon: the pre-retirement individual or couple who wants to buy a retirement home now but use it as investment property for a few years.
“They’re putting their son or daughter – or a renter – into the house until they are ready to move in, but they are buying the house now when pricing is still good and mortgage rates are reasonable,” Vernon said.
George said he is finding these buyers among applicants for PNC mortgages as well.
“Folks want that second home before they retire. That’s an area of sales we are seeing being requested. They are not buying to solely rent but to move in two or three years down the road,” he said.
For those mortgage applicants, Vernon emphasizes a subtle distinction. He points out that mortgages for residential investment property generally run a half-point or so higher than for an owner-occupied residence. Investment property purchases also require a minimum of 15 percent down.
“But if you are buying a second home, which means you spend at least two weeks a year in it, the mortgage rate is the same as for a primary residence, and the minimum down payment is 10 percent,” Vernon said. “And you can rent out the home the rest of the year.”
PNC has developed software to help potential buyers assess how much home they can afford, according to George. Called Home Insight, the program helps customers determine what kind of mortgage amount they can qualify for, connect with the MLS listing in their target area and identify qualifying properties.
“It’s easier for consumers to understand their income and debt on their house and mortgage and connect to what real estate might be available for them to investigate,” George said.
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