I just had a great experience with clients who closed escrow on a fixer upper using a renovation loan. Why aren’t more buyers using renovation loans? They are pretty common in some other areas, but very rare in Santa Cruz County. I have been asking around and most think that there are too many hoops to jump through, and really not worth it. Sellers and their Realtors are often afraid of the uncertainty of getting approval and are very hesitant to accept an offer from a buyer getting a renovation loan. I spoke to a bunch of local lenders and they say only product they have available is an FHA product that is infamous for being very cumbersome, and most seem to think not worth the hassle and expense.
I am happy to report that the loan my clients used was the perfect product for them. We just closed escrow last week and they are already deep into the renovation part of the loan. The loan was a Fannie Mae product. The buyers, Mark and Katie, relocated from Bellingham, Washington and we used a lender they had worked with previously as there was nobody local that we could find that can do them. The loan officer was experienced with this type of loan and did a great job of helping us navigate through the process. Since it was my first time, the contractor we used first time, and our escrow officer’s first time, there were a few kinks in the process due to a learning curve. I have no doubt that if we ran another through I would be better able to guide all in a much smoother process.
What is a renovation loan? A renovation or rehab loan is when a buyer adds the cost to do remodeling and/or repairs to property into the loan. For the example above, the buyers agreed to a purchase price of $395,000 with the owner to purchase the property “as-is”. Then they got a contractor to estimate the cost of the repairs and upgrades the wanted to do, which added up to about $30,000. We closed escrow and the work has begun. The contractor will get paid by the lender as work is completed and that cost rolls into the buyer’s loan rather than coming out of their pocket.
I am looking for another project like this to work on, so feel free to call if you know anyone looking to buy or sell a home that needs some fixing up or remodeling and we can see if it makes sense.
Here is a before photo and the after demo!