As I mentioned in a previous post - see The New Real Estate Trend - this will be the next trend as we have a market flooded with foreclosures, short sales, and dated inventory. I went into a little bit on how this works but lets dive in some more about some options on this and how you can use it to purchase your first or next home.
The common, well known renovation loan is the FHA 203k loan. This loan has been around for a long time, since the early 80's actually. In 2005 it was modified to include a "streamline" limited repair program which is for light to moderate improvements such as, but not limited to, carpet, paint, electrical, plumbing, common updates like kitchen's and bathrooms, etc. You can find that information HERE.
In recent years lenders have teamed up with big home improvement giants like Home Depot and Lowe's to come out with programs that help streamline the process even more for borrowers who work with lenders who offer this. You can see one of those programs HERE. Now each lender may have a different process or name or list of documents needed for these programs, this is only one source.
The other type's of Renovation Financing are Conventional options. Fannie Mae has the HomeStyle and Homepath renovation options. You can check Fannie's out HERE and Freddie Mac's HERE.
With the Conventional options you can use these for not only owner occupied, ie primary residences, but it's open to investors and second homes. You can also use this program for luxury repairs whereas on FHA's 203k you cannot. You will be able to finance at higher loan amounts going up to Fannie and Freddie Mac's loan limits; plus if you're in a High Balance area (temporary increases in loan limits for certain geographical areas) are eligble as well. FHA still will follow current loan limits based on your county and you can search this online very easily on Google or Yahoo. For your convenience, I've included the link here.
Each lender again will have certain credit overlays - which is guidelines or policies put into place that are more restrictive than the published guidelines from Fannie Mae and Freddie Mac - so I will opt out of including guideline in this post and refer you to inquire more with your lender of choice.
NOTE: one thing I will caution on; when calling a lender you need to deal with a Renovation Specialist. What is this? This is a loan officer that only originates renovation loans. The reason for this is most loan officers do not specialize in these and due to the complexity and additional paperwork required and they do not have enough experience to guide you through it. When dealing with a specialist, you are dealing with someone who is originating renovation loans on a daily basis.
With all the changes in the marketplace right now, and guidelines and qualifications changing, and tighter requirements when purchasing lender owned, foreclosed properties, you cannot afford - let me repeat - you CANNOT afford to work with someone who doesn't know how to guide you through the process because this could cause you expensive extension fees and/or your contract being cancelled.
Don't be a guinea pig for someone to learn.
If you're looking for a good deal; properties that are foreclosed on and can be purchased cheap but need repairs; or even an outdated property that just needs some modern updates - this could be the loan option for you.
Some of the property types you can finance (and depends on your program) are single family, multi-family, condo's, mixed-use, and manufactured housing to name a few. Each lender may have it's only credit overlays on the properties they will lend on as well. Some will still lend on manufactured housing, and some will not. You just need to check with your lender when you call. There are not many players in the game and many, who see this as the next trend, are getting in so it's important to deal with lenders and loan officers who are experienced in renovation. This will make all the difference.
Here are some photos of what is actually possible with renovation financing.
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| Kitchen Remodel |
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| Kitchen Update |
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| Bathroom Remodel |
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| Bathroom Update |
Next post I'll discuss dealing with your contractor and working with your HUD Consultant on the FHA option.
God Bless,
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