Have you been out there looking at properties and not having any success? Is that in part because the house you thought you would like ended up needing a facelift? Well, you’re not alone. With little inventory it makes for a very feverish market, causing many offers on the table and overbidding. There may be a solution for those that have some great “vision” when looking at a property. What about a renovation loan? What does that mean?
How about going DOWN in the purchase price and trying to find the diamond in the rough. Then renovating the property to your liking! Replace the carpet, redo the kitchen, redo the bathroom, paint the walls, get new appliances and fixtures, finish the basement, all this sound good. With a renovation loan, you can do all of this! There are a few different renovation loan options, there is an FHA 203k (limited and full), as well as, a Conventional renovation loan.
The way these loans work is you add the amount of (actual, not estimated) renovation needed to your mortgage at closing. It is one loan, one rate, and one lender. Ultimately you need to qualify for the total amount. Depending on the amount of work that is being completed you will need to hire a General Contractor or if doing a limited 203k you can hire the contractors. Whether you hire contractors or a GC they need to be licenced and insured! If you are doing structural renovations (tearing down walls, adding rooms, etc) then you will need to have a HUD Consultant involved, and a G.C is mandatory. This is not a bad thing, we like to think of the HUD Consultant as the big brother on the project. They are there to help facilitate draws and paperwork from the contractor to the investor and also complete inspections on the work. They make sure the GC is doing what they promised, pulling the proper permits and making sure they are doing good work, and working efficiently.
The most common question I get about these loans is what is the timeline. This is where it helps, for you, to know if you are wanting to do this type of loan ahead of time. Because if so our advice would be to take the time to interview contractors and/or GC’s ahead of time, and narrow down the field. Typically with a renovation loan, a purchase contract will need to be 60 days to close. The reason for more time is because you need to get a bid in order to order an appraisal on the property. And honestly, you won’t get a bid as fast as you think, so make sure to plan for more time. Your lender gets the appraisal with an “as-is” value of the property and then an “as-completed” value. You get to see the increased value you will be putting into the property before even having the work done.
These loans allow you to customize a home to your wants and desires. In a sellers market, these helps you to have more options and take advantage of what properties are available without having to overpay or overbid.So open your eyes to the pig with lipstick, there may be a nice piece of swine out there, that you can make your dream home!
If you would like to learn more about these types of loans please give us a call.give us a call.