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If you want to buy a property that is in “less than perfect shape”, there is a little known option available to both owner-occupied buyers and investors: ”Renovation Loans”. These are single loan transactions (combining purchase and reconstruction) that allow buyers to purchase a property AS-IS, regardless of it’s current condition and no repairs are required prior to close of escrow!Â
The program uses after-renovated value to determine loan amount. The key to success is that the renovation project is completely defined and reviewed prior to close of escrow. Contingency times on the purchase are therefore dependent on getting approval of renovation costs and the appraisal.Â
Two program, FHA 203(K) and Fannie Mae Conventional Conforming, have been around since the 1960′s, but little know:Â
FHA 203(K) has a maximum loan amount of $625,500 and is available to owner-occupied properties only. The program uses FHA borrower credit profile (i.e. credit scores as low as 580 FICO) with down payments as low as 3.5% and up to 110% of after-renovated value. Under normal, non-renovation financing, FHA 203 (B), a buyer would have to front both the down payment and out-of-pocket cost of repairs.
Conventional-Conforming also has a maximum loan amount of $625,500, but is for investors as well as owner-occupants and second homes. This uses the conforming borrower credit profile. The loan amount is also determined by the after-renovated value. Rates are typically 1/4 to 5/8% above standard loans, but the overiding advantage is not having to come up with extra cash for renovation costs.Â
Wells Fargo Private Mortgage Advisors, affiliated with Alain Pinel Realtors, has a 36% market share for processing renovation loans. If a renovation loan is of interest to you, please call Rick Bonetti at 408-857-8800 and I will help make the proper connections. Purchase contracts also have to be written in a certain way, so you need expert guidance.