Q. My client found a perfect neighborhood where she’d love to live, but not the perfect home. She did find a home she could potentially make perfect, however, with renovations. What can she do?
A. Your client can purchase a home and finance renovations all with one loan. There are multiple renovation loan options. The most common loan available to homebuyers is the FHA 203K loan. This loan allows a buyer to finance the cost of improvements into the purchase, and is only limited by the maximum FHA loan limit of the county the home is in. There may be required repairs to bring the home up to FHA minimum property standards, but the homeowner can also include optional improvements, such as new appliances, kitchen cabinets or even an addition. The only renovations that can’t be included in this loan are “luxury” items, like swimming pools and tennis courts.
Another option is a Fannie Mae HomeStyle renovation loan. This loan is for owner-occupants, but also is eligible for homebuyers who are looking to buy second homes or investment properties. The homeowner can finance any improvements that are permanently attached and add to the overall value of the home. Improvements are limited by the FNMA loan limit and improvements may not exceed 50 percent of the home’s “after improved” value.
The last option is the Fannie Mae HomePath loan, which is also available to owner-occupants, second homes and investment properties. It offers low down payment options, but renovations are limited to $35,000. This loan is only available for eligible homes sold by Fannie Mae. Each of these loan options are based on the home’s “after improved” value and condition.
Q. How can I market a home that is in disrepair?
A. If your challenge is to sell a less than perfect home, you might consider teaming up with a lender who offers renovation loans and market the home as “renovation-eligible.” By working with the right lender, potential homeowners will not be limited by the present condition of the home, but understand the options available to them. Your seller may also avoid having to make repairs prior to closing.
Q. Many buyers think that to buy an REO property in disrepair, the offer has to be a cash offer because otherwise, it might be a long, drawn-out process. Is this true?
A. This is not true. If you are working with a lender who is experienced in renovation loans, the process should not be much lengthier than the traditional mortgage process. Because renovation loans are based on the “after improved” value and condition of the property, they offer a unique opportunity to buyers and sellers. Sellers can sell the home in its current condition and receive their proceeds at settlement, and buyers can purchase a “less than perfect” home and finance the improvements to make their dream home.
Prospect Mortgage’s vision is to develop a world-class renovation team and become the leader in renovation lending. John Adams joined Prospect Mortgage in September 2009 as a Regional Renovation Sales Manager and was promoted to National Renovation Manager in 2010. adams’ background includes management and loan origination with a major US bank. He has personally closed over 1000 renovation loans, primarily FHA 203k, and the teams he has managed have closed thousands of renovation loans. his background includes 17 years of experience in the mortgage industry and 20 years as a developer and homebuilder. adams received his Bachelor of Science degree from Cornell University.
Craig Achtzehn has been in the mortgage industry for over 10 years as a loan officer and producing manager. tHe branch manager of prospect mortgage in chicago, he has consistently been a top performer at three of Chicago’s premier mortgage lenders, and his primary focus has been providing world-class service for purchase transactions, with his referral sources being realtors, past clients, financial planners, cpas and attorneys. He lives in Chicago with his wife and two children. Achtzehn can be reached at [email protected] or 312-577-5202.