Tuesday, May 19, 2015

It's Possible to Buy a House that Needs Complete Renovation When You Don't Have the Cash to Renovate

Many houses are on the market that need major updating (usually kitchens and baths) or haven't been maintained in years. I come across properties that have structural issues, have needed a roof for a long time, the cosmetics are not up to date, and innumerable other issues. Most buyers can finance their purchase, but then don't have the funds left over to do the repairs and updates.

A renovation loan can be the answer to this dilemma. The interest rate may be slightly higher than a standard purchase loan, and there are hoops to jump through, but it may mean the difference between a transaction or none. The basics are:

  • Start with your real estate agent, who can help you coordinate and navigate through the process
  • Find a property that needs a lot of work and start setting up the financing
  • Get a renovation coordinator
  • Obtain construction proposals from reputable contractors
  • A specialized appraiser prepares an appraisal of the current value and the value after approved contruction is completed
  • The coordinator assists in finalizing a construction contract and approving a loan that includes the original purchase cost and the construction cost.
  • Settlement can occur with the unrenovated value, according to the sales contract with the seller
  • Additional funds are released from the lender to the contractor as the work is completed and inspected for approval
You are left with a loan that is larger than the original purchase price, but includes your renovation costs. Your house is now a home with the updates and repairs that you want. 

This is a specialized area of the lending field. I have a licensed loan officer at Prosperity Home Mortgage who handles these loans exclusively. Let me know if you want to be connected with him.

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