Renovation Financing- turn that diamond in the rough into a gem!

Home buyers want their dream home at a rock bottom price in a great location or homeowners love the location of their home and don’t want to move and want to make some upgrades but are slim on equity. Contrary to popular belief, these situations can be resolved with one of two types of mortgage financing !

Renovation financing gives buyers the opportunities to buy properties possibly at a lower than market price and then make repairs to the property to “make it their dream home.” These programs are also good if you own a property and would like to make ugrades or repairs to the property . The homes are appraised “as if” the repairs are already completed.

There are two types of renovation financing:

1. FHA 203k

a. This program allows the buyer to roll in costs of non-structural repairs to the purchase price of the home. This is great if the property needs baths or kitchen updated, flooring, cabinets, countertops, new furnace and a/c, a roof, windows, insulation, siding, doors, or gutters .The work has to be done by a licensed contractor and completed within 6 months. This program allows for a low downpayment of 3.5% of the acquisition price of the home (sale price+cost of repairs) and the entire downpayment can be a gift from a family member. The seller can also contribute up to 6% of the sale price to pay the buyers closing costs. This program is only good on owner- occupied properties. On a refinance, this allows for repairs up to 96.5% of the “as completed” value. There is a maximum dollar amount of repairs .

2. Homestyle Renovation

a. This program allows the buyer to roll in costs of any repairs- including structural- to the cost of the home. If the house is too small & the buyer wants to do an addition- this program allows for it. This program is also good for investors buying properties and want to roll in costs of repairs.

Both of these programs have a contingency built in , just in case the cost of the repairs goes over the estimate once work begins. If the contingency isn’t used, it is applied to the principle of the mortgage. Both of these programs also require the use of a general contractor to complete the repairs.

If you want to buy property with a home on it but want to demo the house and rebuild, a construction/permanent loan can finance this with as little as 10% equity in the property.

USDA Rural housing and VA loans (both Zero downpayment options!) do not allow for any rehab work/repairs. Houses purchased utilizing these types of financing must be safe, sound, have all mechanical systems functioning, utilities on, and habitable.

So as you can see, there are lots of options to make that home in a great location but your clients can’t seem to get past the green shag carpeting and the bright yellow kitchen cabinets, into their dream home!

As always, I’m here to consult with your clients to help determine the best mortgage options for their situation and make that dream home come true!

Feel free to call or email any questions or if you’d like to get together for coffee or lunch to discuss doing more business in 2014. I’m here to help you sell more homes!


About lizschneider66

Mortgage consultant with over 19 years experience. First time buyers, move up buyers, construction, FHA/VA, Jumbo loans, investment property purchases, & refinances- I will find the solution to financing the American dream of homeownership! Subscribe to my blog and never miss any mortgage industry news. I am Vice President of the North Coast Building Industry Association, Lorain County Association of Realtors, Working Women Connection and Womens Council of Realtors.
This entry was posted in Fannie Mae Homestyle loan, FHA 203K, renovation financing and tagged , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s