If you’re looking for a house, leave room to renovate! You’ll never find the ‘perfect’ house because the house in your head does not exist. But it could. You will need to create it.
So if you’re qualified for up to $250,000, for example, think about what work you’re willing to undertake: Let’s say you’d do a Kitchen/Bath remodel on the right house in a range of $30k-$40k. Why not look at homes $180,000-$190,000 and up? Well under your price range, so there is room to renovate. Plenty, in fact. It’s really interesting when you start realizing you can do any combination of purchase/renovation so long as you keep in range: $100k house with $150k in renovation? $200k house with $50k in reno? You see you can look anywhere under your budget to create what you’re looking for.
You have renovation superpowers. Use them!
You’ve seen them: properties with potential that need serious renovation, and the seller is asking too much given it’s current condition. It’s been on the market 198 days…are they crazy!? Maybe. But…if you like the house, ignore the asking price, figure out what offer makes sense -and make it. They can accept it, reject it or counter, but that’s about all they can do. (No duel or public shaming ceremony.) We’ve seen it time and time again where the seller gets no offer/low offers, their Realtor may even beg them to drop the price, realizing it’s over-listed, and the seller keeps plugging along. Maybe they are from out of town and don’t know the market; maybe they have no idea how much work is truly needed,. Maybe they just want it to be worth more. But in time…something happens, and they need to sell the house and they get real. If you’re the one with an offer on the table – it might be your lucky day! Even if they reject it, you’ve made your move, let them know what it’s worth, and a few weeks/months later…they may come around. A solid, honest offer is like a shot on goal: always a good play 🙂
Have you ever see a house you really like, but there is one or maybe a few things wrong? Maybe a roof at the end of its life, a furnace that looks ‘vintage’ or maybe flooring that has seen too much traffic over the years? Nothing major, but you passed on the house figuring you didn’t have the money after closing to handle that issue. If that’s your story – we can help you write a better ending! With our Escrow Holdback option, we can include the repair costs in the transaction! Repair amounts can be up to 10% of the sale price.
Say you find a $200,000 house you love, but the roof is sketchy ($12,000), and the bathroom needs an $8k upgrade. But at the end…it would be a $220,000 house! You can purchase this home @ $220,000, include the $20,000 renovation budget as part of the transaction. You just need the normal down payment/closing costs and escrows. We close and put the $20k aside along with a 10% contingency budget. After closing, your contractor does the work – with your money/your choices. We pay them from the escrow account. In the end you have the great house you envisioned with a new roof, updated bath and one loan/one payment. It’s a cool product that allows you a 10% remodeling budget on almost any house. Very cool 🙂
Want to know more? Give us a call. We’ll fill you in on this great way to walk around with a 10% remodeling budget in your pocket!
Some folks figure they’ll just buy the house “as is” and then get a home-improvement loan or home equity loan right after closing to do the renovations. That doesn’t actually work. Here’s why: Those loans are based on equity, which you typically don’t have right after closing. For example, if you buy a $200,000 house and put 5% down you owe $190,000 on that $200,000 home. When you go for an equity loan (at a bank or credit union) the max most will lend is 80-90% of the value. And they appraise the house ‘as is’. They don’t look at the impact of the value of the work you’re hoping to do because, well…it’s not done yet. They’ll lend only lend up to $160,000-$180,000 and you already owe $190,000. For that reason, the Home Equity option is not going to be open for years and years after your purchase.
If you really want to do the renovations, and you don’t want to wait for years afterward, the way to do this is to include the renovation budget in a renovation loan as you make the purchase. When you do it this way, the appraiser considers the impact of the improvements on the value of the home and appraises it accordingly. A $25,000 kitchen remodel or a $5,000 furnace is taken into consideration and usually allows us to include the renovations in the loan budget. You can close and get the work done immediately! One loan, one payment, and no waiting.
Renovation Loans: the better way to purchase & renovate your new home!
What’s the best way to buy a house? Most people (99%) look over a period of time, narrow it down and then make an offer on the best one available at the time. The challenge with that strategy is you can only buy what’s on the market so you may end up settling for what you can find. (or keep looking…forever!) A better way is to check out the market, identify a few properties with potential and then write down what you’d change on each one (anything from nothing to everything). Maybe one house is well below range but the kitchen is small and you’d have to open it up completely. Another is close to perfect, but there’s only one bath. A third is a wonderful choice for size/layout and location, and the price is way below budget; but it’s completely dated and needs $60,000 – $75,00 to bring it up to speed. (then…it would be amazing!)
Once you configure your choices, look at the scenarios from all the angles, including financially. You’ll consider which would be the best choice now as well as 5 years from now. The fun part of this is you’re not settling for what’s out there and you’re only limited by your imagination. The kitchen in your head can go in any house. The ability to find the best overall house in the best overall location and then make it yours with a renovation budget is incredibly empowering.
So, if you’re looking for a home that checks your boxes – think out of the box! Don’t limit yourself with the current inventory. Look for properties with potential, bring your imagination to the process and create a home you’ll truly love! Renovation loans might be the key to your new home!
In 1997, I was a successful loan officer working for a community bank. I left that comfortable position to work for a mortgage company that offered no salary. (Looking back, with a wife & son and one on the way…that was a little crazy.) But they offered this cool loan product called the FHA 203k that could help people purchase & renovate a home. It was the siren song I could not resist.
I was eager. Soon I helped a family refinance and renovate their family home. The roof was failing (literally sagging so much it held water) and the inside needed everything: this home was beat! The family needed a way to fix this house to make it safe, sound and financially affordable. Many banks had turned them away because of the condition of the home. But they had good jobs and credit – there had to be a way, right? Then they called me – the new guy with the new loan. And we found a way to win. When we were done, the home was safe, sound and awesome. The new roof was now a thing of beauty. The inside of the home was completely remodeled, top to bottom. It was now a place they could enjoy each other and live comfortably with a peace of mind they hadn’t known in years. The look on their faces as we did the final inspection was amazing. They were giddy! And I was hooked. I knew this is what I wanted to do with my career. I was Home.
We have done some amazing work over the past 30 years, helping hundreds, maybe over a thousand people. The impact we’ve had on the families we’ve served is incredibly rewarding and inspiring. From minor repairs to major, TV-worthy projects, we’ve enjoyed every client, every remodel, every before and after.
Renovation doesn’t just transform houses. It transforms people, families and neighborhoods. It brings old houses to life, revitalizes communities and puts contractors to work. Most of all, it transforms relationships. The space to raise families, cook a great meal or share time with people we love. And we love making this happen.
As I start this weekly blog, we dedicate this space to sharing the adventure. And an adventure it is: no two projects are alike. We wouldn’t have it any other way.