How Renovation Loans Help Agents Sell Homes

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Mortgage and Lending with Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, NMLS #138061 MMCD #1141
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How Renovation Loans Help Agents Sell Homes

 

 

 

“We need inventory”

-          Every Agent, in every market, in early 2016

 

 

     While real estate is local, mortgages often are not.  Being licensed in several states around the country, with each state having different markets within them, I get to see a lot of variances in markets along with many similarities.  One thing that seems to be consistent from sea to shining sea is a shortage of inventory, and markets that lean at least somewhat toward a seller’s market.  In some areas it’s so extreme that agents don’t even want to work with buyers in price ranges where competition is high. Renovation Mortgage

 

 

     While it’s apparent that a lack of inventory is a problem, the larger problem lies in the fact that quality, move-in-ready inventory is tough to come by.  In nearly every market I work in, there is inventory available that needs “a little TLC”.  There are handyman specials to be had, and homes with puke-green shag carpeting, fancy plastic-wood paneling, windows that allow as much airflow as a good screen door, and roofs with a life expectancy of last week readily available on the market.  The problem is buyers are picky – most want to move in and get to living, not get to working.  And sellers just got back all of the equity they lost in the crash – they don’t want to give their home away just because it needs some work.

 

 

     This scenario is where the renovation loan comes in, and opens the door for agents to work with lenders familiar with these programs to sell more homes. 

 

 

     The 3 major renovation loan programs available in the market today are the FHA 203k, the FHA 203k streamline, and the Fannie Mae Homestyle Renovation loan program.  These programs are available to allow buyers to finance a large portion of repair and renovation costs – the solution to a home with great potential that’s not quite there yet.  For the Homestyle & 203k loans, renovation possibilities are seemingly endless.  Everything from flooring to energy efficient upgrades are possible.  While the 203k streamline is somewhat limited by a $35,000 renovation cost cap, in most markets, this is sufficient to make some very substantial improvements to a home in need.

 

 

     So why are these homes that need a little love still sitting on the market for so long?  For the most part, it’s a simple lack of buyer and agent education.  Renovation loans have the reputations of ghosts.  Everyone has an experience, or has “tried to do one”, but no one seems to be confident in informing buyers and seller of the possibilities these programs open up.  Loan officers that know what they’re doing with renovation loans are unicorns.  Mythical creatures that many believe are out there, but no one’s really had an encounter with a closer of this mystical product.

 

 

     For listing agents, renovation loans can help sell a home.  Plain & simple.  “How”, you ask?  As a listing agent, have you considered working with a contractor familiar with renovation loan products?  One that has design tools that could take simple measurements and photos of a home and create a digital blueprint/tour of what a “handyman special” could look like with the financed repairs of a renovation loan?  If you’re looking at a DOM of 150 days in a hot market, it’s likely because you either aren’t priced in this universe, or buyers are seeing the home for what it is.  What if you could show them, when they come to visit, what it could look like, and then educate them on the renovation loan and it’s possibilities.

 

 

     For buyers agents, renovation loans can help you become a superhero for those buyers with a handyman special budget and a move-in-ready appetite.  What if you could tell these renters with a dream “You can buy the home, finance the renovations & repairs to make the home exactly what you want, and even finance the first 6 months mortgage payments so you don’t have to pay rent AND a mortgage”?  Think they’d be at least interested in what you have to say? 

 

 

     Renovation products can be game changers for a real estate agent that works with a knowledgeable loan officer.  Wouldn’t it be nice to sell that home that 2 agents before you couldn’t?  Wouldn’t it be great to help a buyer get into their dream home in a market where dream homes sell for cash above list price with no contingencies while competing with 20 other offers?  Renovation products open the door to this type of scenario.  These loans open the door to help listing agents sell more homes faster, help buyers agents help buyers against seemingly impossible odds, and help loan officers that offer niche products (like me!  I know…shamless plug….) earn your trust by helping you improve your business.

 

 

     In my humble opinion, renovation loans are the most (and it’s not even close) under-utilized mortgage product readily available across all markets.  Let’s change that, shall we?

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Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. Lynn B. Friedman 05/11/2016 09:05 PM
Topic:
Mortgage / Finance
Groups:
Mortgages
All About Mortgages/Mortgage Networking
The Lounge at Active Rain
Bananatude
Tags:
outside the box
remodeling
203k
renovation mortgage
203k streamline
real estate best practices
homestyle renovation
niche mortgage

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Ambassador
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Debbie Reynolds
Platinum Properties - Clarksville, TN
Your Dedicated Clarksville TN Real Estate Agent

i currently have a buyer that needs one of these programs. They have picked out the house but don't have the money for rehab and boy does it need a lot.

May 11, 2016 01:23 PM #2
Rainmaker
2,701,369
Debbie Gartner
The Flooring Girl - White Plains, NY
The Flooring Girl & Blog Stylist -Dynamo Marketers

Yes, this can definitely work for some buyers, esp as many 1st time buyers just don't have the liquid cash needed for this.

May 11, 2016 07:27 PM #3
Rainmaker
2,305,547
Joe Petrowsky
Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709 - Manchester, CT
Your Mortgage Consultant for Life

Good morning John. 203 K business is a large part of my mortgage practice. A lot of that business comes from Realtors and banks. Many turn that business away, glad that is the case.

May 11, 2016 07:42 PM #4
Rainmaker
2,346,102
Roger D. Mucci
Shaken...with a Twist 216.633.2092 - Euclid, OH
Lets shake things up at your home today!

Excellent post John.  Buyers and sellers need to be made aware of what is available for them and agents need to utilize this information.

May 11, 2016 07:51 PM #5
Rainmaker
1,509,800
Kat Palmiotti
406-270-3667, kat@thehousekat.com, Broker, Blackstone Realty Group - brokered by eXp Realty - Kalispell, MT
The House Kat

Excellent information. Knowing there could be a solution for those fixer uppers is important for buyers, sellers, and real estate professionals!

May 11, 2016 07:58 PM #6
Rainer
554,342
Sham Reddy CRS
H E R Realty, Dayton, OH - Dayton, OH
CRS

Great observations!!!

One thing that seems to be consistent from sea to shining sea is a shortage of inventory, and markets that lean at least somewhat toward a seller’s market.  In some areas it’s so extreme that agents don’t even want to work with buyers in price ranges where competition is high. 

May 11, 2016 09:20 PM #7
Rainmaker
4,432,583
Gita Bantwal
RE/MAX Centre Realtors - Warwick, PA
REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel

Thank you for the post. I will bookmark it and share it with others.

May 11, 2016 09:30 PM #8
Rainmaker
132,500
Kevan Pewitt
Houston Prime Realty - Houston, TX

Do you operate in Texas?

May 11, 2016 11:22 PM #9
Rainer
216,240
Macy Babb ... North Georgia Realtor
Re/Max Around Atlanta Realtor - 404-234-6166 - Cartersville, GA
Realtor, SFR, HUD/REO Certified

I try to show some of my buyers these homes...I think sometimes, its just a lack of vision for them.. you definitly need a great Lender who understands the product as well

May 11, 2016 11:49 PM #10
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Paul McFadden
Paratex - Seattle, WA
Pest Control, Seattle, WA.

Great post John. Thank you. My former sister-in-law did a great renovation loan where they essentially gutted and redid what is now their dream home.

May 12, 2016 12:08 AM #11
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Ed Silva
RE/MAX Professionals, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

I have a buyer doing a 203K rehab now and we would be golden if they had used slightly more professional contractors and not just good friends they have known.   Still, without this type of loan they would not be able to get their dream home.

May 12, 2016 12:50 AM #12
Rainmaker
680,030
Nicole Doty - Gilbert Real Estate Expert
Zion Realty - Gilbert, AZ
Broker/Owner of Zion Realty ZionRealtyAZ.com

I'll be honest, our inventory here is pretty much where it needs to be for a healthy market. We can usually handle about 23k active homes in the greater Phoenix area and right now we're about 22k. 

May 12, 2016 01:40 AM #13
Rainmaker
2,851,695
Kathleen Daniels
KD Realty - 408.972.1822 - San Jose, CA
San Jose Homes for Sale-Probate & Trust Specialist

John,  Yes. Yes. Yes. Yes. Yes. 

You da man!! 

As you know, I am looking more and more into this with one of our clients. We've seen some properties that would need a streamline loan. 

May 12, 2016 02:44 AM #14
Rainmaker
1,561,684
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

This is the kind of loan that buyers should really be looking into.  Sadly, they talk "fixer" or "rehab" but when it comes down to it, they buy already done!  And I mean sadly.  Sweat equity can be so valuable.  Great read John Meussner 

May 12, 2016 05:15 AM #15
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

John these are excellent loan programs.  We do not have them right now but I refer my Borrowers to those who do them if I have a Borrower that needs to do a renovation loan.

May 12, 2016 08:49 AM #16
Rainmaker
147,508
Kathryn J.
Rentec Direct - Grants Pass, OR
Rentec Direct

John, Quick question (I hope) do you know if this program is offered in all states?

May 13, 2016 12:53 AM #17
Ambassador
4,130,000
Jeff Dowler, CRS
eXp Realty of California - Carlsbad, CA
The Southern California Relocation Dude

Thanks for this information, John. Our local market IS pretty competitive and there are plenty o chokes that do need some fixin'. Haven't worked with anyone using this type of loan but it offers some good opportunity for the right buyer

Jeff

May 13, 2016 01:40 AM #18
Rainer
159,111
Cesar Bautista
Keller Williams Realty Central Coast ~ Pismo Beach - Santa Maria, CA
Your Central Coast Area Realtor 805.264.1646

John, i purchased a home about a year ago and purchased the home with a 203K loan.   I was somewhat familiar with the 203K  process but now I'm a strong believer in this product.  My experience was positive and my loan allowed me to add an additional 424 SF living space including 2 extra bedrooms, 1 full bath and a pantry.  This is a great option because the renovation and repairs are financed in the loan and one low interest rate.  It is important to work with a lender who specializes in this area.  I orginally spoke to my preferred lender but I discovered early on he was not familiar with the process so I found a 203K specialized lender.  A few small quirks in the process but a viable option for buyers.  I also recommend obataining at least 3 contractors bids or more.   My received bids varied by thousands of dollars so shop around.  Depending on how complex the renovation, I recommend hiring a structural engineer to draw out the plans.  Once you move into the house, the renovations needs to be completed within a year.   

May 13, 2016 09:56 AM #19
Rainmaker
217,102
Rob Ernst
Certified Structure Inspector - Reno, NV
Reno, NV-775-410-4286 Inspector & Energy Auditor

I love when people use those products. Buyers put confidence in their lenders and agents to be experts in the field and provide the best service for the buyer. Unfortunately buyers, at least in this area, are never told about these options. I as a home inspector love to hear when people are suing these options as it gives buyers an avenue to repair things discovered during the inspection. I also love the EEM option for energy efficient improvements. I have performed Energy Audits for many of buyers that used this option. I personally did both on the home I'm currently in and was able to take a home no one wanted and made it into a great home that is like new, efficient, and comfortable.

May 13, 2016 12:26 PM #20
Rainmaker
525,914
Dave Halpern
Keller Williams Realty Louisville East (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

Many buyers can pick up instant equity by using renovation loans when buying fixer uppers

Aug 25, 2017 05:32 AM #21
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