Renovation Loans: Great For Your Clients - And You
Perhaps your clients have found the home of their dreams in the perfect location – close to schools, work …or the Pacific Ocean. Or they’re looking to improve, not move, from the urban oasis they already own. In either scenario, they’re looking for an easy way to purchase or refinance, while making home improvements. Do you advise against it? Recommend a cash-out loan? Let them look at using their own cash or credit cards?
There’s an easier – and better – solution. Renovation loans.
If you’ve hesitated to recommend renovation lending for purchase or refinance in the past, it’s time to reconsider. For your clients, it’s the ultimate cash-out alternative and can save them significant time and money. At the same time, these programs can create new opportunities for you in this steadily growing home improvement boom.
More importantly, renovation loans are easier than you think. At Home Point Financial, we provide you with an end-to-end solution, with options to fit your clients’ needs and a simple post-closing process. Home Point experts will handle the management of the construction phase for you and your clients. No hard hat or restoration supervision is required of you, allowing time to focus on continuing to build your business.
Thanks to feature segments and an ever-growing number of home renovation shows on TV, consumer awareness of the advantages of rehabbing is growing. This is having an impact on both the current
Many potential buyers are drawn to older homes for their charm and relative affordability. Proximity to downtown areas and walkable neighborhoods are also big selling points for these clients.
With a renovation loan, your buyers can finance the purchase price and the cost of repairs or upgrades into one mortgage loan. Plus, there are options to cover a wide range of renovation projects.
FHA Standard 203(k), Limited 203(k) and FannieMae™ HomeStyle® loans give your buyers the flexibility to finance larger repairs and upgrades cost-effectively for home purchases or refinancing.
For example, a Standard 203(k) loan can be used to make a wide variety of home improvements – including structural repairs – so long as the total cost exceeds the minimum of $5,000. The maximum is contingent on the county limit for the home. High-balance homes are included in the program.
What can be done with a 203(k) Standard loan? A lot, including:
- Structural changes
- New additions
- Increasing the building footprint
- Swimming pool repair
- Retrofitting a home for handicap accessibility and more
Buyers need to be aware, though, that because of the scope and cost of the approved changes, a 203(k) Standard loan requires the involvement of an FHA HUD consultant. Work must start within 30 days of closing and be completed within 180 days of closing. A maximum of 5 contractor draws are permitted, and specialized contractor(s) can provide technical items and service.
The Limited 203(k) program is intended for minor rehabilitation and/or improvements that do not require plans, consultants, engineers or architects, such as:
- Gutters and downspouts
- HVAC systems
- Plumbing and electrical
- Minor remodeling, such as kitchen updates
- Flooring and more
No repairs or upgrades that are performed should make the property uninhabitable for more than 15 days during rehabilitation.
The maximum repair amount is $35,000; there is no minimum. Up to 50% of the contractor’s bid can be advanced for the cost of documented materials. Allowable additional costs that may be financed
Like 203(k) loans, FannieMae™HomeStyle® is offered for both purchases and refinances. It provides a solution for borrowers, allowing them to obtain financing covering property acquisition and/or rehabilitation. The maximum loan amount matches the current Fannie Mae loan limits.
HomeStyle has no minimum in repairs, and total project cost may not exceed 75% of the “as completed” value. A consultant is required on projects exceeding $35,000. Unlike the 203(k) loans, luxury home improvement items such as a new, in-ground pool, gourmet kitchen or a home theatre room are eligible.
HomeStyle loans permit any improvements that are fixed to the property and add value, including:
- Structural improvements
- Deck or additional garage space
- Interior updates
- Solar panels and more
Borrower eligibility and credit qualifications for these renovation loan products are the same as any other loan, with the same maximum mortgage limits.
You can make a strong case for renovation loans; many buyers prefer repairable older urban homes. And, because most want a home to be truly their own, there’s a built-in willingness to spend. This is particularly true for the refinance market, as homeowners look to update existing furnaces to more energy efficient ones, redo a kitchen or bathroom or simply provide a new exterior look. That’s why we often say, “Don’t move – improve!”
Research has shown that during the first two years after buying a house, the typical owner of an existing single-family home tends to spend about $4,000 more on repairs and upgrades than a similar non-moving homeowner. And, in the absence of a renovation loan, that usually means increasing credit card debt.
Home Point Renovation Lending gives you and your clients more options. With three different loan products, you can help them determine the scope of work that needs to be done and select the loan that best fits their needs. Plus, you can help your clients avoid additional loans for construction while increasing property value and equity in their home.
Renovation loans also provide an excellent opportunity to increase your pipeline and tap into the rapidly growing home improvement industry. They provide a great alternative to cash-out loans, allowing for higher LTV and the potential for increased financing due to the higher LTV and appraiser value determination. Best of all, they contribute to neighborhood improvement.
At Home Point, we combine a complete renovation loan product suite with process knowledge and dedicated specialists to make home improvement projects possible for your buyers. Our experience allows us to handle the post-closing construction management, so you and your clients don’t have to.
If you’re not already taking advantage of renovation lending, Home Point Financial (NMLS 7706) can get you started. Visit hpftpo.com for more details.