When Is a Renovation Loan Useful In Selling a Listing ?
Damage evident such as ceiling water stains, broken or cracked foundation, walls or floors with holes or only a sub-floor, Asbestos present in tiles or pipe wrap, missing fixtures or doors, mold, flooding or anything that would adversely affect health, safety, security or sanitation in the propertyProperties that do not show well such as an estate sale that are fully safe and functional but badly outdated or just in need of new paint and new appliancesDivorce situations where a Seller wants a quick “as is “ sale but refuses to do any repairsREO and foreclosures are often in need of repairs but buyers may have no cash for repairsSellers can attract offers by giving UP TO 6% of the sale price back as a credit for the buyers loan and closing costs on a 203K – set the price accordingly to allow for that option and set sellers expectationsMixed use of commercial and residential up to 4 units can be financed with a 203k even if little work is needed instead of a more expensive commercial loanAdd words to the comments section of the listing – “Down payment of 3.50 % with repair funds in the loan & based on the future value of the property” (96 characters can add to your income)I can provide custom flyers for your listings showing the payment with X dollars of renovation funds to make it a dream home – (buyers qualify on payment not price in renovation loans)
How Is a Renovation Loan Helpful To a Buyer ?
Purchase a property on another site, move it onto a new foundation on the mortgaged property and rehab itInvestor purchasing a 1 unit property (condo, townhouse, single family) to lease out with cash needed for repairs built into the loan with Homestyle conventional loan from Fannie Mae to $417,000Investor purchasing a multi-unit Homepath property to lease out with up to $35,000 in repair funds built into the loan with Homepath Renovation by Fannie MaeDown convert a multi-unit to less units or to a single family residenceUp convert a single family or multi-unit to a max of 4 units to a max loan of $788,450Purchase a mixed use building with commercial and residential space up to 4 units with 3.50 % down that otherwise requires a commercial loan even if the building needs little work or rehab all the residential spaces and common areas (loan funds cannot be used to renovate the commercial space per FHA 203k rules)Rebuild a badly damaged property from the old foundation up completelyTear down a property while keeping the existing foundation using a 203k or Homestyle to add to the foundation and rebuild a larger propertyAdd up to the first 6 months of mortgage (PITI) payments into the loan while property is uninhabitableFor buyers more concerned with location or school district yet on a tight budget and limited inventory a renovation loan will allow the “wrong” house in the “right” location to become their dream home often worth 20% more than they have into it when done – think HGTV Property Brothers or Love It or List ItAdd handicapped accessibility, energy conservation improvements, weatherization, landscape and site improvements, any changes for aesthetic appeal, windows, HVAC, appliances, smoke detectors, fencing, decks, patios, porches, basement finishing & waterproofing, siding, tuck pointing, roofing, gutters, facade work, flooring, lead paint abatement, additions, etc.
Brands of Renovation Loans
Homestyle by Fannie Mae – a Conventional loanOnly renovation loan for Investors purchasing any 1 unit property type from any Seller to lease outMax loan amount for purchase and renovation is $417,000 in this area & limited to 1 unitAllows any type of rehab work to be done as aboveBuyers who will occupy a 1 unit home often use this brand instead of FHA 203K if they have at least a 10% down payment with a higher credit score to avoid the extra costs FHA imposes (1.75% charge for mortgage insurance at closing and mortgage insurance paid monthly for the entire life of the loan at costly 1.35 factor, etc.)Buyers with 20% down payment have no mortgage insurance fees to pay so have no need for an FHA 203k renovation loanBuyers with 10% or 15% down can use less costly Private Mortgage Insurance (PMI) with this brand to save money both at closing and each month over FHA 203KHomepath Renovation by Fannie Mae – a Conventional loanProvides a renovation loan amount up to $35,000 for REO properties sold by Fannie Mae whether a 1 unit condo or up to a 4 unit building- $35,000 is always the limit for rehab funds howeverPrimarily used by Investors leasing out properties who buy multi-units and need funds to renovate to some level within the $35,000 limit being sold by Fannie MaeA Homepath condo in a high rise can be purchased by an owner occupier or an Investor and have up to $35,000 for renovation (FHA does not allow any renovation loans in condo projects with more than 4 units in ONE building even if the condo project was FHA pre-approved) Has NO mortgage insurance cost at all and often buyers needing only $35,000 or less for rehab who purchase from Fannie Mae will use this brand of renovation loan instead of an FHA 203K or Homestyle as it may cost less per monthOwner Occupiers can purchase using this brand with as little as 5% down and have no mortgage insurance to pay since the rates Fannie Mae offers are high enough to cover their exposure as Fannie Mae is both the Seller and Buyer of the property loan and new loan insurerFHA 203K – Insured by FHAAllowed for those who will occupy as a primary residence only on 1 to 4 unit propertiesSplit into two sub-brands with $35,000 a threshold called Streamline or for over $35,000 a Full allowing all the renovation work described above between the two sub-brandsOver $35,000 in rehab funds require use of an FHA licensed Construction Consultant who provides a Scope of Work document detailing work needed to bring property to minimal FHA standards as well as buyers “must haves” with costs on each for labor & material in 35 categories used as a basis to shop for Contractor bids and manages the flow of rehab funds to the Contractor and Sub-contractors as work progresses to completionMax loan amounts in this area are $410,000 for a ONE unit; $524,850 for a TWO unit; $634,450 for a THREE unit; $788,450 for a FOUR unit including purchase loan and rehab funds all with 3.50% down payment and borrowers can add up to 6 months of mortgage payments (PITI) into the loan amount
** Renovation loans allow buyers to borrow funds based on the Future Value of the property unlike any other loan **
(Renovation loans can be done as Refinances also)