If you’ve been toying with the idea of moving some of your money into real estate investments, this information just might get you off the fence and into the game.
Mortgage lenders experienced with and offering the 203K Renovation loan can now do these types of loans on conventional as well as FHA loans using the Fannie Mae HomeStyle® Renovation loan. The occupancy requirements of the borrower include not only buyers who will be occupying the home as a primary residence, but also buyers who are purchasing the property as a second home and buyers who are purchasing the property as an income or investment property.
With the Fannie Mae HomeStyle® Renovation loan, real estate investors can now finance a property that customarily was a ‘cash only’ purchase due to poor property condition excluding it from traditional financing. Cost for repair can be added to the mortgage with those funds being escrowed and dispersed for repairs to licensed contractors, chosen by the buyer, after closing the real estate transaction. Some examples of repairs that can be rolled into the HomeStyle loan are: roof repairs/replacements, new air conditioning units/repairs, new appliances, plumbing installments/repairs, new flooring, painting, kitchen/bath remodels, landscaping, and even swimming pools. Unlike the FHA 203K loan limitation of financing only one property at a time, the HomeStyle loan may be used on multiple properties, simultaneously. A licensed contractor must be used to do the repairs/remodels as a condition of a HomeStyle loan.
Using a Fannie Mae HomeStyle® Renovation loan is an attractive option for investorsbecause they can leverage available capital to purchase multiple investments, if they so choose. Previous to the availability of this type of loan to investors, an investor might buy a home for $100,000 and spend $35,000 to renovate and repair the property in order to bring it to ‘rentable condition’ and the investor has used up $140,000 of his available assets. With the Fannie Mae HomeStyle® Renovation loan, an investor can now purchase, essentially, any home, condominium, villa, or townhome, in any condition, and retain between 50-75% of available capital to use for more investment opportunities.
There are a few things that are very important for an investor/buyer to keep in mind if he/she is considering using a Homestyle Renovation loan for purchasing property:
- It’s crucial to enlist the service of a real estate professional with special experience, education (designations), and expertise with distressed property transactions. From the point of looking at investment opportunities and determining the ‘best buy’ properties in the best areas for attracting the largest pool of rental prospects and commanding an adequate monthly income, an experienced agent will provide invaluable guidance and counsel. When it comes time to write a contract on the chosen property an agent who is experienced with foreclosure, REO, and distressed property transactions knows how to skillfully and expeditiously draft and present your offer, even in the situation where there is more than one offer (which is often the case in our current market), giving your offer the best chance of acceptance by the bank/seller. Be sure to ask an agent that you’re considering working with about their experience with foreclosures, short sales, and REO transactions and ask if they have obtained further education and/or possess any special designations for selling these types of properties. It will make a huge difference in your real estate investment purchase process to have an agent by your side that knows how to navigate well in this sector of the market.
- Choose a mortgage loan consultant who is experienced, not only with investor loan transactions, but if you want to use a Fannie Mae HomeStyle® Renovation loan for your investment purchase, be sure to ask about the loan consultant’s particular experience with renovation loans. Also ask about how long it would take them to ‘close’ on the loan. An experienced loan consultant should be able to close the loan within 30 to 45 days, with proper cooperation and quick response from the investor.
- It is a good idea to enlist the services of a licensed contractor who is familiar with the renovation loan process to look at a potential property purchase BEFORE you make an offer on the property. Have the contractor with you when you look at the property with your real estate agent and make a list of repairs and improvements so that you will be ready with a bid for repairs to provide to your lender expeditiously.
Mark McCarthy is a Senior Loan consultant with Prospect Mortgage and is a Certified HomePath Renovation lender as well as a 203K Renovation Lender in the Bradenton/Sarasota area of Florida. Mark was a research consultant for this article.
Contact Mark with questions or for more information about Renovation loans at:
Loan Officer- Prospect Mortgage