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Looking for a San Diego Renovation Home Loan? With banks owning more and more properties as foreclosures continue to grow, renovation loans have become a great option for buyers and are helping the banks lighten their books. What, you may be asking, is a renovation loan? Well I’m glad you asked because I was about to tell you.
A lot of the bank owned properties on the market were left in shambles by their former owners. Fixer-uppers is usually the term used, and investors or prospectors are often the ones who buy them, put some money into “fixing them up” and then sell them, hopefully for a profit. Renovation loans enable non-investors to enter into the picture as prospective buyers who want to purchase a home for cheap but might not have the money to fix it up. John Sway, National Renovation Manager for Wells Fargo Home Mortgage told Diane Eastabrook on a PBS Nightly Reports that, “what we’re dong is we’re increasing the pool of buyers, so we’re getting more buyers to look at a property, so we may end up selling it for a couple percentage points higher than we would to an investor.”
With traditional loans, the lender typically requires improvements/renovations on a home to be finished before a long-term mortgage is made. After all, loan security generally comes from good condition and value of the property and lenders of course want to minimize risk. With renovation loans however, the loan is based on after-repair value and includes an escrow account to complete the repairs needed to bring the house to a condition that lenders prefer. This makes buying properties in need of repairs much more feasible and eliminates the need for people to run up their credit cards and/or take out additional lines of credit.
So for example, say there is a property in need of repair, and as a result you can get it at a great price of $285,000. After further inspection, you learn that the work to fix it up will cost you $45,000. A renovation loan will allow you to buy the place for say, $340,000, and then have a “Renovation” Escrow account of $55,000 with which you must repair your home. There are, of course, contingencies in the contracts that state that you must perform specific renovations with that money, so you can’t go all Bernie Madoff on the bank and run away with their money. Any money left over after the renovations are complete go directly towards paying down your mortgage balance.
Downside to this type of loan? Well, the rates, though very competitive and reasonable for the most part, are slightly higher than a conventional type of loan. And there are usually caps placed on the amount the banks are willing to lend for renovation. As a result, there are those like Jim Wheaton, Deputy Director of Neighborhood Housing Services of Chicago, also interviewed by Eastabrook, who don’t think this type of program does that much to help. “You know, $25,000 or $30,000 sounds like a lot of money, but when you start talking about home improvements and construction, it doesn’t go very far.” Valid point. But renovation loans have helped many get into a home and fix it up in one fell swoop. My advice? Never hurts to ask your bank or lender about this type of loan. Especially if you’re in the market to scoop up a foreclosed home for cheap.
Also if you’re looking for a commercial construction loan or development loan please visit our commercial financing section.