If you have found Pinterest or Houzz than you probably have also found a dream kitchen that you’d someday like to have. And if you are like most people, you probably don’t have an extra $20,000 to $40,000 in the bank just waiting for you to hire a contractor to build that dream kitchen.
There is however, a loan program that is completely under-utilized that can help you get the dream kitchen you’ve always wanted. Or dream anything for that matter. You need 3 things in order to make this happen:
- Vision when looking at fixers – search fixers by clicking here.
- A resource to find contractors (Try my Homekeepr app for access to contractors and professionals) or the skill to do it yourself
- A mortgage lender familiar with 203k loans (Also called, rehab or renovation loans). I recommend Ken Steiner for Rehab Loans.
A good Real Estate Broker can help you with the vision. I’ve seen in person the “Before and After” of 100’s of homes that have been renovated. I’ve seen enough floor-plans and attended enough finish selection appointments with builders and buyers to have a pretty good idea of what works and I certainly can help you determine the home improvements that will create the best resale opportunities or return on your investment. Of course, you may still want to hire an architect or designer, but for the preliminary look, an experienced Broker can help you find a diamond in the rough and will have fun doing it.
The renovation loan works with the same concept as a construction loan. The bank will authorize the full amount of the loan, but each part of the renovation is paid for after its completed.
Let’s say you found the perfect home, it’s an older home that has been well cared for over the years but hasn’t been updated since the early 1960’s. I just saw one like this the other day, the carpet was a shag blue/green swirl but underneath that rug were beautiful hardwoods. The house is listed at $225,000 based on the condition; however, if it were updated it would fetch a price in the high 200’s easily.
As a buyer using a renovation loan, the following steps are a rough outline of what happens from beginning to end.
- An offer is negotiated between buyer and seller, the buyer discloses to seller the that a renovation loan is being pursued and as part of this process requests at least 45 days and preferably 60 days to close in order to accommodate time for the contractor bids.
- During the first 10 days of the transaction, the buyer conducts the home inspection as well as gets a number of bids for any projects that the buyer would like to consider.
- In this example, the buyer would get a bid to remodel the kitchen, the bathroom and also to re-finish the hardwood floors.
- The bids are turned into the lender and the lender orders the appraiser to determine market value as if the improvements are complete. Let’s say that the appraiser agrees with me and gives the home a value of $285,000 with the work completed.
- The loan is authorized at the higher purchase price, however, at closing only the price of the home is released. The remainder of the loan is kept in an escrow account to be drawn at after the work is completed. The transaction closes and the buyers are now the official owners.
- The buyers either schedule the contractors or they can even do the work themselves. Let’s say the buyers decide to have the kitchen and bathrooms done by professionals but they want to re-finish the floors themselves to save money. Because the floor job will create a lot of dust, the buyers choose to re-finish the floors first. Once they are done, they can call the mortgage company to come and verify the work is complete. At this time, the bank would release the budgeted funds for the refinishing of the floors to the homeowners.
- Next the buyers hire the contractors to finish the kitchen and the bathrooms. Again as soon as the work is completed, the bank will authorize payment to the contractors. Any leftover money can be used to pay-down the principle of the mortgage.
- The buyers can sometimes even have a month or two of payments rolled into the cost of renovation so they don’t have to move into the home until the work is complete. Let’s say in our example that the work took a little over a month so the buyer’s had two months rolled into the renovation.
- Now, the work is done, and the buyers can say they got a deal on the home because they found a cosmetic fixer. They have a well cared for home with a brand new kitchen, bathroom and beautiful hardwood floors. The buyers got to choose the colors and the finishes just as if they had bought a brand new home. They hired out the difficult parts of the job but saved a little on the small jobs.
If you are looking for a mortgage professional that specializes in 203k loans, I can wholeheartedly recommend Ken Steiner, Senior Loan Officer NMLS ID#698260 with Home Street Bank. Ken has not only been helping home buyers with these types of loans for over a decade, but he also holds classes regularly to teach Real Estate Brokers how these programs work.
Click here for Bank Owned homes in Renton here which are often fixers, or if you’d like me to look for a specific type of fixer, please contact me at Jana@JanaSchmidt.com and I’ll put together a list of viable options for you or just click here and tell me what you’d like to find.