Your clients are eager, qualified and ready to take the plunge into homeownership, either for the first time or as their next move in the quest of the American Dream. Unfortunately, they quickly discover there are slim pickings. The shortage of vacant homes for sale not only limits options, but frequently leads to bidding wars that drive prices beyond your client’s budget. How can you help? Low inventory does not have to be an insurmountable obstacle. As with most challenges, a little creative maneuvering can go a long way; or, as the popular catch phrase emphasizes “think outside the box.”
Surprisingly, alternative funding is a wonderful place to start. With the scarcity of homes on the market, and how quickly they are selling (many listings receiving multiple offers), I suggest my clients consider setting their sights a little lower or change their approach. Instead of trying to find that “perfect” property, I recommend they look at properties that need work or aren’t quite up to their standards … yet. A renovation loan is the perfect solution, and truthfully if approached with the right attitude, it can be a lot of fun with tremendous rewards.
Custom Not So Costly
Another option, albeit a bit more aggressive, is to purchase a plot of land and build. This might sound like a daunting challenge, but what better way of ensuring they truly end up with the home of their dreams without overpaying for it? Today, the airwaves and internet are filled with creative and innovative do it yourself ideas. Some of the most popular cable programming features would-be buyers seeking out a property about their choice, but with considerable work needed. These “fixer-uppers” ultimately prove to be the star of the neighborhood with a bit of money and plenty of elbow grease. The new homeowners have exactly the home they’ve dreamed of, in a community they admire and typically for significantly less financial expenditure than if they had found the home in its renovated condition.
Custom home building has similar if not greater results. Beginning from the ground up, these families can dictate not only the number of bedrooms and baths, but the floorplan and all the personal touches that make a house a home. And again, typically the final property will cost considerably less than if the buyer had purchased it already built.
So Many Options
Unlike the limited choices available in the homebuying market, there are ample options when it comes to selecting a renovation or construction loan. Before discussing these with your clients, be sure to be up-to-date with every aspect. Obviously, these are not the same as a typical mortgage and you should be prepared to clearly convey these differences to your clients.
One of the most frequent concerns applicants have with regards to a renovation loan is whether the appraisal on the property takes into consideration the value of the home once these improvements are completed. The answer is yes! This ensures that the amount available adequately covers the anticipated work. The appraiser gets a list of what renovations will be done from the contractor before he/she does their inspection, so they can assess the after-renovation value
Much to the surprise and delight of my clients, renovation and construction loans are essentially regular mortgages. They just allow the buyers to bundle the renovation/ construction costs with the acquisition into one mortgage (as opposed to mortgaging the property and then taking out a home equity loan on top of that to pay for repairs). It’s one loan with one rate. Construction loans and renovation loans are one mortgage that each include financing of the repairs/renovation and construction costs, respectively.
In my experience, these options have proven to be very successful for those clients who choose this route. A little creative thinking and stepping outside the box can bring delightful results for you and your clients. Rather than be deterred or disappointed with what’s currently available, a renovation or construction loan can open myriad opportunities with wonderful results.
by Andrew Augustyniak Branch Manager