How Can Realtors Sell Renovation

Selling Renovation

This is becoming so hot right now with all the foreclosures on the market but you have very few lenders who know how to originate, process, and close these.  Aside from that, you have few loan officers who are specialists in this area (and by the way you want to be working with a specialist) which creates issues because loan officers not familiar with the process on these are "winging it" and this is where your horror stories come from.

So work with a specialist!

Anyway...the topic for today is how can Realtors sell this in the marketplace.  Part of my continuing education class curriculum is going over how to sell this and quite frankly it's really easy.  You're doing it right now and you don't even know it.  Here's how..

When you're taking a client through a property do you ever make suggestions on carpet, paint color, or possible improvements they can make to the home to "make it theirs"? Use phrases such as "add your own personal touch"?

Sure you do.  What you're doing is selling renovation financing already it's just you're not connecting the dots with the client which is letting them know they have a way to do this now instead of later and over time (this is where you direct them to the specialist you've teamed up with to explain further, just leave it at that)

Let's face it...

They may say they are going to do it but over time that intent diminishes because life is busy, they will get distracted with other things and it will never get done; so by letting them know that this is an option now and that they can finance the cost of repairs into the loan along with their purchase - and they can move into the property and quickly begin and finish their desired improvements, is really really powerful and motivating.

Why? This creates the vision in their mind what the home will look like completed and we all know visuals are extremely powerful and will move people to action.  You're selling feelings here.  Besides, I would rather make the home my own then rely on the seller making improvements or "settling"on a house that was newly renovated that isn't just right but "will do" paying a premium for that house... and heck maybe over time even redoing those renovations to satisfy my own liking...

What a waste of time, money, and effort.  I would utilize the opportunity to do it now and turn the home I "just like" into the one "I really love" now.

More Ways To Sell Renovation

That's just one way.  Another way is to overcome property condition objections.  Ever have somebody walk in and before they even see the rest of the house, and say "nope, no way, carpet is ugly, cabinets gotta go, I'm done here"? 

Yea, you've been there before.  Use this as a tool to again, describe in short, what they can do.  Find out if that's really the objection.  

If the area is great, price is great, school district is good (if applicable) just ask this simple question to intrigue them and get them thinking... If I could show you a way where you could replace all of these ______ (whatever it was they had a problem with) brand new roll it into your loan and have it done the way you want, and have it done right after closing, would you be interested in knowing more and would you want to move forward on this home?

Spark interest; find out what is really bothering them about the house.  Will this always work? Will this be the answer for everybody? No, of course not but just like in baseball, can't hit the ball unless you take the bat off the shoulder and swing.  Same goes here, you won't know unless you ask...it's just another tool in your toolbox you can use to sell more homes.

Properties in need of repairs

Renovation financing is perfect for those "ugly properties" that need repairs just to get the financing done because standards, lets face it, have tightened up.

Instead of avoiding these, if you have a client interested in one of these properties, you should be smiling from ear to ear as they are already sold on this property and plan to make improvements as they want "the good deal" since it needs repairs. 

This is where you sell renovation financing and let them know they are creating additional equity through the improvements and they are able to obtain the financing with a low down payment solving two problems - purchasing the property and renovating it - all in one loan.

Example:

Purchase price - $50k

Estimated repairs - $40k

As is value - $50K due to condition

After-improved value - $120k once fixed up (which by the way is how we base their maximum financing off of, after-improved value which is why this option is so appealing)

Options to buy - cash as financing it with a regular loan will not fly due to repairs needed

Money needed for repairs - $40k

Total cash out of pocket - $90k

Now Using Renovation Financing See the Difference

Same as above for price and repairs so total NEW purchase price- $90k

After-improved value - $120k

Down payment on loan (depending on program) - either 3.5% or 5% (investor loans 20 and 25%) based on the $90k

Total cash needed - 3.5% of $90k = $3,150 5% of $90k = $4,500 + any closing costs that are not covered by the seller.

Difference $90k in cash OR

Put down $3,150 to $4,500 and use renovation financing to get this property.

Total equity - $30k
Total money out of pocket saved = $THOUSANDS

Not too shabby huh?

Either pay $90k out of pocket to pay cash and fix up or use renovation financing with minimal cash out of pocket and use banks money at low interest rates.  Fully amortized loan over 30yrs

Option 2 is definitely the smarter one.  This is an easy sell.

Some More Options

Now you can use this loan to sell updates to a badly outdated property as well.  Needs completely updated to modern standards - no problem - you can do anything from light to moderate (painting, carpet, cabinets, to plumbing, electrical) all the way up to tearing the house down and rebuilding on same foundation.  Has mold or lead based paint? No problem there either - done! 

More complex properties such as mixed use or manufactured - done! 

Conclusion

So you see, there are many ways to sell this and we are in a very wet, muddy, crazy marketplace right now but there is a way for you rise above the competition and dominate this piece of the market and do very well because I'll tell ya...

Nobody else is focusing on this at ALL.  They are scared of it.  That's because of the stories that they've heard and been told but then again were they working with a specialist and what was the whole story, would be two questions I'd be asking. 

Don't be scared of it - learn it, sell it, dominate, and have a monster successful 2013 because again, this will be the next real estate trend...

You can read When To Use Renovation Financing post as well here.. http://swigartsmortgagejournal.blogspot.com/2012/10/when-to-use-renovation-financing.html

Dustin

FHA Fund In Deep Doodoo

FHA's Finances

You're probably laughing at the title but it's true folks...FHA is in DEEP doodoo (my spelling I don't care) and has been for a long time.

Rueters released an article recently stating that unless FHA does something soon it will be drawing money from the Treasury...

So what's new in Washington? More taxes, more bailouts, more losses being covered up and now FHA will increase fees yet again to try to shore up the balance sheet and avoid a so called bailout.  However what's the difference right? All of us as consumers are bailing them out by paying higher fees for the mortgages.

The fund is a total disaster and the program is so outdated it's had little changes since it's inception in the 30's.  They know it needs restructured but choose to kick the can down the road. (just like everthing else, ha)

FHA now insures 1.2M mortgages and their share of the market has increased to 15% from 5% in 2006. The article went on to say that it missed needing to draw from the Treasury due to $1B in settlements from servicers...hmmm.. could that be why Wells was the next target?

Estimation is the fund will not be back to it's 2% capital ratio requirement until sometime in 2017...this just strengthens my prediction we're not going to see rates go anywhere upward - they just can't - anytime soon; they're relying too much on new activity and higher fees to keep the ponzi going.

Plus with the lawsuits they're hoping to generate some more revenue for the fund.

We're playing a dangerous game of Russian roulette here.    Just see this quote from Maxine Waters below

"At a time when the private market constricted, the FHA stepped up, providing crucial liquidity and access to the mortgage market," said Representative Maxine Waters, a senior Democrat on the House Financial Services Committee.


She warned against taking any actions that would "precipitously" choke off loan availability.

Oh yea...they know what's up.  If we choke off credit - crash and burn baby...

So What Mindset Should You Have About All of This?

So what does this mean for those in the industry? Consumers? Well folks you can't change it; it's happening and you're not personally going to do anything about it so if you're shopping for a loan and all you qualify for is FHA, you're just going to have to take it from behind...and you'll be forced to like it.

If you're in the business like I am I know what's going on and I understand it.  For the consumer I know it's hard as you don't go through it every day like we do.

The good news, because I try to focus on the good because you'll cause nothing but anxiety and stress if you don't, is that there is a real opportunity to utilize a program FHA offers and to take advantage of it.

What is it? It's the 203k renovation program.  I've said in earlier posts that this will be the new real estate trend, and it already is beginning to be, for some time to come.  Without going into full detail as my blog post will explain, you can buy a fixer upper and finance the cost of the improvements into the loan...
and your maximum financing is based on after improved value of the property...This is an awesome program but it does suck that it will be more expensive now...

However - if you find a property that is priced well below market value and put the right improvements into it, you CAN create instant equity.  Go here for details and read my blog post on it. 

Again folks, please keep in mind it's not your loan officer or realtor who caused all this mess...(see below)


Yeah Buddy!



It's these guys...they know, knew it, and let it happen because there buddy lobbyists were filling their pockets full of cashish. 

Stayed tuned and lets see what happens now that the election is over and we'll get to hear some nice juicy stories like we've been like the General Petraeus's little affair and whatever else they want to release now that Obama is back in for 4 more years.

Hold your hats...







When To Use Renovation Financing

 When To Use Renovation Financing

People often associate renovation financing with dumps; foreclosures and bank owned properties; but that's entirely true.  You can also use Renovation Financing for outdated properties as well or even in situations where you would like to build onto your existing home with improvements such as a room addition or second story.  Anything light to moderate from kitchen updates, flooring, electrical to a complete tear down and rebuild on the existing foundation....you really do have many options available.

The most popular renovation loan is the FHA 203k loan.  This loan has been around since the early 80's and was designed to help revitalize communities and renovate the aging housing stock. This in of itself a stimulus package.  It creates economic activity on many fronts from the purchase of the home (or refinancing) to hiring of contractor(s), purchasing of the materials, and keeping money flowing through the economy. 

Even though this loan has been around for many years, very few lenders know how to originate them or even offer them.  I think you'll see this change as more foreclosures hit the market to which renovation financing is the only way to get loans on these properties because in the as is condition...they don't meet minimum property or appraisal standards for financing. 

I'm calling it right now that renovation financing will be the next real estate trend.  See my previous post on this here ====> http://swigartsmortgagejournal.blogspot.com/2012/09/the-new-real-estate-trend.html

The key to completing these loans in a timely manner is:

1. Going to a lender that specializes in these and speaking a renovation specialist. Not all loan officers are trained properly to originate these and it could get ugly if they don't know what they are doing.
2. Having your plans for renovations decided on early.  If you're purchasing a home make sure have the walk through with the contractor to determine needed and/or desired repairs. Also if your doing a 203k it's advisable to have a HUD Consultant inspect upfront so that you know what minimum repairs are needed early in the process.
3. Do not make multiple changes to the scope of work after beginning the process because each time you change the scope of work, this triggers needed paperwork changes that delays the process.
4. Turn your documents in as quickly as possible.  Read my blog post on being prepared at application here ====> http://swigartsmortgagejournal.blogspot.com/2012/09/how-to-be-prepared-at-application.html 
5. Again - work with a specialist, work with a specialist, work with a specialist.  They have the experience and training to advise you and lead you down the path to closing as quickly as possible.

Now I can give you many more tips but just follow these above and you'll be just fine.  Using renovation financing is an awesome tool to help turn a home you just like...into one you really love.  Not only that but your getting the financing at low interest rates and spreading the cost over 30 yrs....and...you're increasing or even building equity with the improvements so that in the future when you sell; you can get top dollar and have money left over for a bigger down payment on the next one.

I've had people purchase foreclosures at $40 and $50k and putting $20-$30k into them and walking away with 20% equity to build on for the future.  You just can't go wrong with these loans.

Until next time..

If you like this blog check out my other one www.livingwithnolimits.net.

Thanks,

Renovation Financing FHA and Conventional

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.





Kitchen Remodel

 


Kitchen Update

 




Bathroom Remodel

 


Bathroom Update

 

Next post I'll discuss dealing with your contractor and working with your HUD Consultant on the FHA option.

God Bless,