Monday, October 26, 2009

Renovation Home Purchase Financing Options

As it relates to property condition, most conventional lending standards require that certain electrical, plumbing, mechanical, and structural systems be in a safe and reasonably operable condition to qualify for a mortgage loan. For example, a buyer may not be able to get a conventional loan on a home where the bathroom has been completely demolished, where the electrical wiring has been completely stripped from the home, or the central heating and air conditioning units have been removed. The lender will require those items to be repaired prior to the close of escrow.

There are certain types of purchase "renovation" loan programs buyers can obtain that will allow you to purchase a home this condition though. You might ask your loan officer about the FHA Streamline 203K loan. With this loan, you can potentially purchase a home that needs non-structural improvement, and borrow more than the actual purchase price of the home in order to complete these renovations after the close of escrow. With a loan like this, you could potentially purchase a home with a demolished bathroom or kitchen. Of course the house does not have to be half demolished to use this loan - you can cosmetically upgade a dated house as well.

Once your offer is accepted on a home, you will have to obtain detailed contractor bids and additional inspections to comply with the loan underwriting procedures. Once escrow has closed, work must be completed within a certain period of time, and funds are disbursed by the escrow holder once work is successfully completed.

If you happen to find a property that is not in complete need of this type of comprehensive renovation, you might also look to a program like the Energy Efficient Mortgage (commonly referred to as the EEM). Again, with this program you would borrow a bit more than the actual purchase price ofthe property, but these funds are used toward energy efficient upgrades (such as new dual pane windows, insulation, etc.).

Strategize with your Realtor and loan officer how best to use these programs.

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