One problem facing buyers in the current market is the lack
of available inventory. Sellers continue to bide their time. However, buyers do
not need to miss out on low interest rates or the ability to purchase in their
target neighborhoods. Although Renovation Lending is not the solution for every
borrower, it is an opportunity to get into certain areas by purchasing a
potentially lower- priced property and then borrowing enough money to fix it
up. It is by no means a panacea, but it
is certainly an option and in many cases, one which can rapidly increase the
equity in your property.
A Renovation Loan differs in many ways from a traditional
construction loan. Reno loans are closed one time, with the purchase money
going to the seller and the renovation funds placed in an escrow account held
by the lender throughout the draw process. In most cases, there is no upfront
money from you or the lender for the contractor; the General Contractor works
on a draw basis. This is not a hardship for any solvent contractor as they
should have the ability to buy materials and pay their sub-contractors while
being reimbursed through inspected draws.
Most neighborhoods still have a large quantity of
foreclosures that need to be fixed up or even properties
that are simply outdated.
Here are some key words that indicate
that the property may be right for a Renovation Loan:
- Sold “as-is
- Estate Sale
- Any foreclosure that has NOT been recently updated
- Fannie Mae or Freddie Mac foreclosures (especially the Fannie Mae HomePath properties)
- “fixer-upper”
- Handyman’s dream
- Current occupant has 400 cats
- Property needs “love or attention”
Depending on your budget, you can gut a property or just
update the kitchens and bathrooms. As long as the property is habitable at the
end of the six month rehab period and you remain within the guidelines of the
loan program, you can often use your imagination as to what you would like your
home to end up looking like. You can even purchase and rehab a 2-4 unit
property as long as you occupy one of the units!
So, before you start your next tour with your agent,
consider asking about properties that are ripe for renovation. It may be an
opportunity to create the home you dream about and live in the neighborhood you
choose! Contact Carrie Rosenberg, renovation loan specialist, for more information.
Next topic: Which Renovation Loan Product is right for you?
