Lately, it’s not uncommon to hear about a home selling within just a few days of being offered for sale. This can be quite frustrating for anyone actively looking for a home but there is a viable option that could put a stop to shopping stress – renovation loans.
It is extremely disappointing to lose out on a property because you didn’t make an offer fast enough, or because the sellers received multiple offers and the amount you offered was too low. I have heard many buyers talk recently about how difficult it is to finally find a home in their ideal location, with an updated and turnkey interior, then watch helplessly as it goes under contract before they have had a chance to move on it.
Simply put, a well-priced property under $250,000 in excellent condition and in a desirable area hits the market, it often sells in an extremely short amount of time.
It’s a side effect of the insanely hot local real estate market conditions, and is at least partially why I have been getting so many questions about renovation loans recently.
Renovation loans are great for buyers with a need to live in a very specific location or those who may not have the requisite funds to cover an extensive home remodeling project out of pocket. It is a somewhat complicated process but well worth it, considering the savings that can be realized when compared to financing a home renovation through credit cards or other forms of credit.
With a renovation loan, the funds needed to bring the home up to date are set aside at closing into a trust account and rolled into the entire loan amount. The contractor in charge of the renovations has the authority to draw funds out of the trust at specified intervals in order to pay for his fees and cost of materials.
The process typically begins with a buyer finding a home that meets most of their expectations but needs work to repair some of the major systems. For a buyer in this situation, the first step is to contact your mortgage broker about being interested in applying for a renovation loan.
The next task is to contact a licensed general contractor, then tour the property with the contractor and create a quote for the desired repairs. It is also a good idea to have a licensed Realtor analyze the current market inventory in the area to create an estimation of value based on comparable sales.
The quote from the contractor will have to be included in the loan application, along with an initial appraisal of the home’s current market value and the estimated value of the home after the repairs have been performed. There are many variables that go into it but the main takeaway is, as long as the value of the house after the repairs are done is aligned with the value of the comparable properties in the neighborhood with similar improvements, everything should be ok.
If not, then the buyer will have to decide, Do I want to bring more money to the closing table in order to ensure that the repairs I want are completed? Or, Do I want to take some of the repair items off the list so I can close on the property without having to pay as much out of pocket?
For a complimentary, in-depth discussion about your options for pursuing a renovation loan - which allows buyers to choose their materials, colors and desired repairs - contact me at the number below.
Patrick Stoy (NMLS Numbers 39527 and 39166) has 16 years of mortgage lending experience. Patrick is CEO of Wilmington-based Market Consulting Mortgage, which he started in 2005 with a mission to build lifelong customer relationships by providing real value. To learn more about Marketing Consulting Mortgage, visit www.macmtg.com. Patrick can be reached at [email protected] or 910-509-7105.