Its been a little discouraging lately as we have had to put our 78 Main St renovation project on hold while we begin the loan process over again.
I’m sure that someone will provide just the right name for the economic turmoil we are all going through in the last 2 years… the “second depression”, the “millennial recession”, the “banking collapse of 2008”. I don’t know what it will be called, but we’ve been experiencing it in an unexpected way.
The renovation we are doing is on a house that is zoned “mixed use”: business, residential, and commercial. We will be living in the upstairs and my business, the Energy Emporium will be renting out the first floor — nice retail space. We’ve gotten lots of support from the town, the local communities, energy efficiency and sustainability groups, friends and family. This is the “right thing” to do for a lot of reasons.
So what does ‘mixed-use’ mean when we want a construction loan to help with this project? Well… a few years ago, it didn’t make a big difference. You went into the bank and you could get a loan for this. It could come from the residential side of a bank if it is backed by the owners income, since it would be their primary residence.
That was then and this is now. To make a long story short… this kind of a mixed-use residential loan will not be picked up by most banks today. The reason? “It can’t be sold on the secondary market”, which makes it too much of a risk. The thing that doesn’t make sense to me as the home-owner is that it isn’t a financial risk for the bank… it is a risk that they can’t sell it to the next guy, even if they were planning on holding it in house.
All last fall we worked the many angles of the type of house, the zoning, the type of loans, etc. and we found a loan that we can qualify for… a 203K, federally backed loan for mixed-use renovation properties. Great, right? Ok… there is a lot more paperwork, the rates aren’t so great, and I have to hire a consultant just to get through the processing… but it is a loan.
We closed on that loan back in January. Then the bank we closed with basically decided they couldn’t fulfill that loan. Ouch… is this a case of a homeowner fore-closing on a bank? What is going on in the banking world today?
Many months later, this is now May and we haven’t received any loan money. We are close to getting our closing costs back from the first bank and hopeful that we will close on the same loan with a different bank in early June. Very disappointing. I’ve spoken to many people about this and there is no explanation. It is just a VERY strange economy we are living in.