More online
Read more about renovation
loan products at:
FHA 203(k) Training Module:
sctsm.in/FHA203Training
FHA 203(k) Documents:
sctsm.in/FHA203Docs
HomeStyle Overview:
sctsm.in/FNMAHomeStyle
Jeff Lee is assistant vice president of renovation lending at
Fairway Independent Mortgage. He has been in the mortgage industry for the last 15 years, specializing in all forms of
construction and renovation lending. Lee currently manages
a team of renovation and draw specialists at Fairway.
Reach Lee at jeffl@fairwaymc.com.
Dan Ventura is a branch manager for Fairway Independent
Mortgage in Newburyport, Maine. Having several years’
experience managing operations at the branch level,
Ventura found Fairway to be the perfect fit for him and his
clients. Now that closings are happening faster than ever,
and borrowers find limitless programs available, he is able
to help even more people with their home-financing needs.
Reach Ventura at danv@fairwaymc.com.
A Home in Need of a Hug
Renovation loans open up possibilities in a tight housing market
By Jeff Lee and Dan Ventura
The increased use of technology when searching for and purchasing a home puts buyers in the driver’s seat, but the draw- back to not working with knowledgeable
Realtors and mortgage originators is that homebuyers
may not learn about the variety of lending options
available to them. Computers may be faster, but they
can’t adequately analyze a buyer’s situation and provide options that may make more sense for their
circumstances and financial goals.
Many young first-time buyers are staying out of the
market today and continuing to rent because they
can’t find a turnkey home that fits their exact style.
Most mortgage professionals have heard from clients
who decided not to put an offer on a home because
the wallpaper was ugly, the countertops needed to be
replaced or because they didn’t want to deal with any
work out of fear that their lack of time or budget would
hinder them.
Other buyers end up purchasing an older home
anticipating they will fix issues over time. Oftentimes,
reality sets in months later and what seemed like a
great idea ends up being a never-ending to-do list and
a potentially expanding budget with the potential for
debt. As time goes on it becomes more likely that the
owner will decide it’s not worth the money or time
and, instead of fixing their home, they list it after completing a few minor upgrades and search for a new
turnkey house that doesn’t require repairs.
According to a 2015 American Housing Survey,
44 percent of owner-occupied homes in the U.S. were
built prior to 1969, and 83 percent were built before
2000. As we close in on 2018, this means that five out
of six homes in the U.S. are nearly 20 years old and
close to half are almost 50 years old or older.
Many homebuyers in the future will want to perform
some type of renovation on the homes they purchase.
By working with educated and experienced mortgage
originators instead of going through an automated
system, borrowers can learn about renovation options
that are appropriate for their situation.
Loan options
Unfortunately, many homebuyers don’t realize that
there are other financing options available. Renovation loans allow borrowers to fix all needed repair
items and add their own personal touches without
having to spend additional money once they own the
home. They can absorb the cost of renovations directly
into their mortgage.
Renovation loans come in several shapes and sizes.
The various products allow for everything from minor
existing foundation. If you can think it or dream it,
products available.
Renovations are typically done using either Federal
Housing Administration (FHA) or conventional renovation loan programs, depending on the borrower’s qualifications and what work needs to be done to the home.
FHA has the 203(k) loan, which comes in either a limited or standard program. The conventional product
is called a Fannie Mae HomeStyle loan.
A limited 203(k) loan can be used for minor repair
items that are mostly aesthetic in nature and has a
capped repair budget of $35,000. The standard 203(k)
loan allows borrowers to complete both aesthetic and
structural work. The HomeStyle loan allows for both
structural and nonstructural repairs with the only limitation being the repairs must be permanent and add
value to the home.
Renovation benefits
Renovation loans are powerful because they open up
a whole set of inventory. Renovation loans can take
fixer-uppers that many buyers were leery to purchase
— homes that may have sat on the market for months
on end — and turn them into a buyer’s dream home.
These loans allow buyers to pick their desired
neighborhood and overall living package regardless
of a home’s condition. Rather than settling for whatever they can find on the market, these specialized
mortgage products allows borrowers to create the
individualized home of their dreams, one that is safe,
comfortable and highly personalized.
In addition, renovation loans can create instant
equity for homeowners as well as the opportunity to
customize a new home because the after-improved
value of the home will generally exceed the cost of
purchase and repairs. Plus, the loan-to-value ratio for
a renovation loan tends to be higher than a conven-
tional first mortgage combined with a second-lien
home equity line of credit, so buyers can borrow more
to complete their desired renovations.
Finally, renovation loans are a reasonably priced way
to finance big-ticket repairs. The cost of a roof, furnace
or new bathroom can be exorbitant, but these large-ticket items can be financed with minimal impact
when factored into a monthly mortgage payment.
n n n
More and more, digital automation is becoming the
norm in business. But in a highly personal business
such as mortgage lending, automation can sometimes
hurt clients. Originators need to be able to educate
borrowers — in the digital space and in person —
about their options to make sure they end up with the
right loan for their personal circumstance. Borrowers
need to understand that just as their financial circumstances are different from others, so too are the loan
options available to them.
This doesn’t mean mortgages can’t be automated. It
simply means the process of buying a home must start
with a personal touch to ensure that borrowers know
all of their options. If a renovation loan works for a borrower, it often can make possible that homebuyer’s
desire for a customized home in a way that doesn’t
require additional money post-closing. The borrower can then purchase that new home with an
attainable to-do list and, hopefully, with much more
confidence. n
