Buying a Fixer-Upper Home With a Renovation Loan
This guide covers buying a fixer-upper home with a renovation loan. Several types of renovation loans exist for homebuyers and real estate investors. Owner-occupant homebuyers can utilize FHA 203K renovation loans for primary homes. The 2008 real estate and credit market collapse has devastated millions of American homeowners nationwide. Many lenders are wary of lending to real estate investors buying a fixer-upper home due to the skyrocketing home prices, high rates, and out of control inflation numbers, says Dale Elenteny, a senior loan officer and renovation loan expert at Gustan Cho Associates:
A substantial percentage of homeowners have lost all of the equity in their homes they have accumulated over the years. Countless others have loan balances higher than the value of their homes. Bankruptcies and foreclosures soared to historical record numbers.
Home values have tanked throughout the country. Many residential homes are selling below the cost of building the home. Fast forward five years and ample inventory of homes can still be bought at bargain prices. Many first-time homebuyers have expressed interest in purchasing a fixer-upper home. This is because they feel they will get much more for their money. This article discusses purchasing a fixer-upper home with renovation or Fix and Flip loans.
Buying a Fixer-Upper Home: Think Budget!
Buying a fixer-upper home is a great idea if the buyer knows the budget beforehand. In many cases, with buying a fixer-upper home, the estimate the homeowner gets and the actual cost of rehabbing the home can be quite different. Homeowners run into extras from contractors and cost overruns. Buying a fixer-upper home can be disastrous as well. Homeowners should hire a competent home inspector and ensure they get a detailed report. Homeowners often do not realize that buying a fixer-upper home can have major electrical, plumbing, and structural issues.
Do Research When Buying a Fixer-Upper Home
Always get at least three bids from reputable contractors. If one of the three contractors has a ridiculously low bid compared to the others, find out why that bid is so low. Do not fall victim to a bait and switch where the contractor low balls just to get the job and later are stuck with paying thousands of dollars in extras. Always review the construction contract and write NO EXTRAS. Do not advance money to the contractor until work has progressed. For those with a construction loan or an FHA 203k loan, an inspector will see if the work has been done correctly before the lender advances the contractor’s funds.
Always Pull Proper Permits
Make sure the contractor gets all of the proper building permits. Licensed professionals should do structural, electrical, and plumbing work, and it needs to be thoroughly inspected before it is covered by drywall. Before giving the contractor final payment, ensure the home passes inspection by the private home inspector and the city inspector.
Make sure the building inspector issues a certificate of occupancy. Ensure all paperwork, including architectural drawings, permits, copies of licenses from contractors, and guarantee paperwork.
This paperwork will probably be requested when it comes time to refinance or sell a home. Buying a fixer-upper home can be fun and challenging. Coordinate it right, it can be very profitable for the homeowner. If you do major renovations without a permit, you may not be able to sell the property to a homeowner who are getting a government-backed or conventional loan. There are strict property flipping mortgage rules and regulations where the purchase price, cost of construction and permits will need to be disclosed.
Update Fix and Flip Renovation Loans
Fix and flip renovation and hard money loans are only for owner-occupant properties. You cannot get approved for hard money, private money, or fix and flip loans for owner-occupant primary residential homes. Gustan Cho Associates has FHA 203k renovation loans and renovation loans available. We also have all in one construction loans for owner-occupant homes.
New loan programs for real estate investors are now available. No doc fix flip rehab loans to real estate investors, developers, property flippers, and consumers needing short-term financing. Gustan Cho Associates offers private money loans and hard money loans. A 20% to 30% down payment is required on all purchase hard money loan transactions. 70% loan to value is required on all cash-out refinance private money loan transactions.
