When a Buyer finds a home that needs extensive work which they want to have completed before they move in, they can combine the purchase of the property with a renovation loan…at the same interest rate as a “normal” 15 or 30 year fixed rate mortgage!
How? After a Buyer locates a potential home, he/she will need to do a feasibility study with the Realtor and a lender-approved contractor. If structural repairs are needed, it will be necessary to engage a HUD approved Fee Consultant. These are licensed real estate inspectors that have been approved by HUD to be a Fee Consultant.
A General Contractor of your choice will present you with an itemized bid for repairs which is then presented to the lender. Then the loan application process starts and the application is submitted for approval. The appraiser will then appraise the property and base value on the property plus the improvements that need to be made. The loan will close before repairs begin, just like a normal loan.
Work must begin within 30 days after closing, and may not be “dormant” for more than 30 days after it’s begun. All work must be completed within 9 months of the closing date.
Draws are made according to a pre-arranged schedule as work is completed and inspected.
Important: This will not work with a DIY (do-it-yourself) project….all work must be done by the approved contractor and his/her employees.
Normal Conventional or FHA underwriting guidelines apply….original property purchase and construction costs are all under the same 15 or 30-year rate, but there is an additional cost of about one-half of a point.
Example:
Original property Cost: $500,000
Construction Estimate: $100,000
Down Payment at 15%: $90,000
Loan Amount: $510,000
Additional half-point fee: $2,550