Renovation Loans or Repair Escrows
We hope you are enjoying the full peak of summer! These dog days are hot, though there is charm in the late summer heat.
Sunday I finally noticed the honeysuckle growing on the side of the Broken Arrow Expressway, and now I notice it all of the time. Honeysuckle is a great metaphor for my childlike Tulsa, OK, summers. The cooling treat on the path of every summer stroll. You pluck the petals in one smoothed motion. The surgical precision required to plunge ALL of the juice. Sweet. Then, it left you wanting more.
But always wanting more is sometimes a lot of fun. The kind of fun that results in something we remember forever.
Sometimes our clients see great homes. But sometimes they still want more.
This is why I love doing renovation deals. I love it when we do deal for something good, and then we provide a way to do even more.
This is why people love to buy real estate.
Great renovation deals require great levels of “expectation management”. And chronologically speaking, great renovation deals start in the listing presentation.
So here is the situation. The sellers want to sell a house “as is” and do not want to spend a single penny selling it. You know some things are going to need to be fixed. This is the time to step up your game and let them know what their future holds: their pool of buyer opportunities will be very shallow unless we handle this.
Now an alternative situation. This time it is the buyer we are consulting. They have identified a near perfect house, but it lacks something: kitchen isn’t up to par, the roof is worrisome, and needs more insulation, or they wish it had a pool.
Do we want an escrow or a loan?
- Could we escrow for it? This is a great solution if the seller is willing to make the repairs and/or upgrades, but they require that their payment for the repairs is to be made through the closing.
- What about an FHA buyer funded escrow holdback? The borrower could borrow (The Sales Price + The Escrow Repair Holdback) x 96.5%
- Is a HUD REO program available? This may be available if the mortgage product is FHA and the appraiser requires minimum repairs under $5k.
- Can we add it into the contract as a seller funded item (even when it costs them nothing)? This can be a solution if the borrower is using a VA loan. The VA will allow repair escrows of up to 100% of improved value (sales comparison approach). Since it is a 100% loan, why not write the contract in an advantageous way.
- Would the repair be classified as an improvement to the homes efficiency? Many mortgage products offer an EEM Feature (E.E.M. stands for energy efficient mortgage). These popular credits allow for the replacement of appliances, utility components, and sometimes even the windows and doors.
There are so many options…
Of course, there is always cash. But isn’t there also always a better use for cash; especially when mortgage rates are so low and money markets are gaining? Borrow low and invest high…
Another option might be a home equity line of credit (HELOC) – short term notes that often balloon, increase in rate as they adjust and usually require higher fees when compared to the APR (annual percentage rate) of a conventional renovation mortgage. I currently am working with 12 different renovation mortgage products, and I am not going to get into all of them at this writing, but borrowers who intend to occupy the home have an abundance of options.
These are loans that provide the money to acquire the house, and the additional money required to renovate it into a perfect home.
The challenge for making everyone an impressed, raving fan is to manage the expectation.
And no matter which option you are taking, the top level players know how to do this is within the contract.
The Team is excited to announce we are in the process of earning the right to teach this information to you. We are currently working towards certification for our class “How to Write Renovation Contracts”. In cooperation with the Oklahoma Real Estate Commission and the Greater Tulsa Association of Realtors, we hope to bring this class to you, soon.
So as you finish your summer, please remember the honeysuckle, and keep reaching for more!
Copyright 2015 John Regur All Rights Reserved – Originally Posted at: Tulsa Oklahoma Mortgages – John Regur