Renovation loans for the average homeowner are an attractive option in 2020. Lack of inventory, bidding wars, a never ending sea of buyers with limited inventory can wreck havoc on a home buyer in Colorado looking for a mortgage as a first time home buyer or contingent ( I have to sell my home first to buy yours) buyer.
Renovation lending is a great alternative take advantage of great mortgage rates conventionally, with a single 1st mortgage only on fixed terms.
As a Denver based Mortgage Broker it is imperative to have access to every single product on the market. Renovation lending is not as difficult as you may think, and it is offered as a conventional loan through Fannie Mae. A renovation loan will come into the picture quite frequently as it seems all the good homes get snatched up, and the ones that need some work, they usually get passed on.
The following will be a breakdown in how a renovation loan works, and after that I will go over an actual CASE STUDY for a Denver loan in process now, for your potential home buyers to follow.
What the FANNIE MAE Homestyle RENOVATION loan is not. IT IS NOT A CONSTRUCTION LOAN. IT IS NOT AN FHA 203k LOAN. This program is a Renovation mortgage for homebuyers considering moderate home improvements, avoiding a 2nd mortgage, Home Equity Line of Credit, or a hard money private loan with outrageous terms. You can use this as either a refinance or purchase mortgage. The loan amount will be based on the "as-completed" value of the home, not the current value.
Property TYPES ALLOWED are 1-4 unit principal residences, 1 unit second homes, or 1 unit investment properties including Condos, co-ops and PUDs.
Focusing on the first time home buyer or the invdividual who would like to put down the minimum, 5% is the required minimum down payment.
The borrower will need to choose their own contractor to perform the renovation, and they will need to be reviewed by the lender to determine if they are qualified and experience.
"Do it Yourself" Work - You are allowed to perform the renovations yoruself if the work does not exceed 10% of the as-completed value with work items no greater then $5000
Renovation costs are limited to 50% of the as-completed value, and you are allowed to roll in up to six months of mortgage payments if the renovation will require the property to be uninhabitable.
$249,900 purchase that will not appraise the way the property is at value.
We use a Fannie Mae HomeStyle Renovation Loan and the renovations are costing $42,795 with repairs of the following to be completed, with a 10% contingency included
The appraiser will do 1 appraisal based on the as is value, and the specifications of repair estimate, to determine the as-completed value.
The buyer now will be paying the purchase price $249,900 plus renovation costs of $42,795
Total Acquisition cost will be $292,695 and if the renovations now make the home worth this much, the buyer will bring in 5% of this amount which is $14,634.75
In closing, the Fannie Mae Homestyle Renovation Lending program is a great mortgage tool to utilize and have as one of your choices, when looking at homes to buy that require some work.
If you have any questions about this product, you can reach Brian Quigley at firstname.lastname@example.org or call him at 720-949-5630