Low inventory, over-booked showings, multiple offers, and bidding wars — just some of the characteristics of today’s real estate market.
Let’s face it — any home that has appeal, is priced right and located in a sought-after neighborhood will likely have no problem selling within a few days.
But what about the homes that aren’t as pleasing on the surface to buyers . . . do they still have a chance?
In some cases a seller may be hesitant to list their home if they need to do upgrades or improvements — thinking the home needs to be perfect before it will appeal to a buyer. In addition, the current homeowner may not have the financial resources or desire to do the improvements. Also if they did improvements, it would be to their taste and may not appeal to a potential buyer. With a strategic marketing plan, a home that may need repairs or modernization can be listed as an opportunity for a listing agent to take a different perspective or fresh angle to market a home that otherwise may lack certain appeal.
Depending on a buyer’s individual situation, they may have the financial resources to purchase with the down payment and closing costs covered, but they may not be in the position to invest thousands of dollars into a renovation project.
Renovation mortgages can be the answer to the buyer that says, “I like this home, BUT . .. ” That “but” can easily become an “and” . . . “I like this home AND can upgrade the kitchen, upgrade the bathroom, install central air and make it my own.”
The most familiar renovation mortgage is the FHA 203(k) loan. This loan offers a great deal of flexibility for improvements or repairs — including painting, flooring, updated appliances, modernizing HVAC systems, addition of decks or patios, basement finishing and more. As with any program, there are certain guidelines and restrictions, but ultimately there are plenty of options for a buyer to personalize the home in many ways.
The general steps for an FHA 203(k) loan are as follows:
- Have your mortgage pre-approval in place for the 203(k) renovation loan. Not every mortgage lender offers this product, so be sure you’re working with a lender who does and that they have a process in place to be able to help you navigate throughout to make it smooth and efficient for all parties involved.
- Choose your projects. Decide what home improvements you want to do. The lender will require any health or safety concerns to be addressed as a priority, and then the cosmetics can be addressed and decided upon.
- Choose your contractor. You can select any licensed and insured contractor, but it is best to choose one who has a full-time business and has had experience working with FHA 203(k) loans. The contractor will be required to not only complete your requested home improvements, but also the lender-required work as well.
- Get your contractor estimates. Once you have chosen your contractor, they should provide fully detailed and accurate bids. This information is provided to the appraiser so they can complete a property appraisal based on the “as-completed” value of the home. Any information that is omitted or changed after the fact can impact the property value and incur additional appraisal-related costs.
- Your lender processes, underwrites, approves and closes your loan. Buyer signs all mortgage documents and the ownership is transferred from the seller to the buyer.
- Contractor starts the work. The contractor is expected to begin the work within 30 days of the loan closing and generally has three to four months to complete the project. Depending on the scope of the work, there are appraiser inspections at various stages until the project is completed. Many buyers can live in the home while the work is being completed.
- Once all work is completed, a final appraisal inspection is done to ensure all work has been completed according to plan.
With the demanding housing market we’re experiencing, new ideas and opportunities can create a competitive edge for agents, buyers and sellers in the marketplace. Renovation mortgages can be a key contributor to differentiation and a new life to limited or tired inventory. To learn more, a buyer should contact a licensed mortgage loan originator to discover all the options available to them.
Dan Ranck, HomeSale Mortgage, LLC
Mortgage Loan Originator
Direct: (717) 271-2400 / efax: (866) 849-4320
firstname.lastname@example.org / www.danranck.com
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