John Jones covers the basics of renovation loans and how a renovation loan could help you buy a home at a great price and have the money needed to do repairs and improvements without coming out of pocket.

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JOHN:  Hey, guys.  John Jones with another edition of Tuesday Morning Coffee.  Thank you so much for tuning in today.  I did not join the Marines.  I just got a haircut.  Ms. Boone down there at Hair INXS took care of me, and not only will she give you a great haircut—well, I hope you think it’s a great haircut—but she massages your head with that soap or that shampoo that gives you that little tingly sensation, and she puts the hot towels over your face.  It’s a heck of an experience.

But don’t do it in the middle of the day like I did because it makes you want to go lay down somewhere it feels so good.  Today, what we’re talking about guys is there’s opportunities out there because of all the foreclosures nationwide and bank-owned properties.  There’s great opportunities out there for buyers to get properties for a pretty good deal.  The only problem is most of the properties that are a pretty good deal or a better deal than average, even in a depressed market, are ones that require some work.  Ones that maybe need new carpet, new paint.

Maybe they need something finished on the house that the previous owner did not get finished.  But that’s the reason they can get it for a good deal.  The problem is most of your traditional financing methods—FHA, conventional, things like that—a lot of times they will shoot the house out if it needs a lot of work.  They won’t even allow you to buy the home.  So what other choices do you have?  Well, there’s a heck of a loan out there that we’ve started seeing our buyers do again.  It’s been around forever.  It’s called the FHA 203K.  It’s a renovation loan.

And it’s where you see a home that needs repair and FHA has to look at the home.  They have to get a bid from your contractor on the work they’re going to do.  They have to look at the bid and look at the home and make sure that it makes sense and they feel like the work can be done at that price.  But they let you borrow not only the money to buy the home, but also the additional money to do to the work to the home that you want to do.

The one key thing on these loans, and they’re great loans, especially in a market like we’re in right now, the one key thing is the home must appraise for the amount—and here’s the cool thing, they will appraise it based on the home as it sits plus the work that you’re going to perform to the property.  So in other words, if you go out there and you find a house and you negotiate out to 100,000 and it needs $30,000 worth of repairs that you want to do to it, the main thing is that home must appraise for at least $130,000.

The day you close on the house to purchase the home, an additional 30 grand you can draw out as the new work is being performed on the home.  So it’s a heck of a way to do it.  It’s a very streamline process, only one closing.  The qualifications are very much that of just an FHA mortgage, whatever you need there, which is probably the less stringent qualifications out there for someone to get a loan.  You still need 3-1/2% down payment.  They want to see at least that much invested into the property.  So as long as you have that and the home meets the qualifications in the appraisal process, it can be a really good situation for our buyers.

So I just wanted to throw that out there because a lot of people don’t know about it.  They don’t think there’s any hope if they don’t have a ton of cash in their pocket to do the renovations, but this is a great way for somebody with limited capital, limited funds to finance a home and take advantage of some of the great deals out there on some of these properties that do need just a little bit of work but are a great value.  So thank you.  If we can help you with any of this, please call us, 867-3020.