Since 2007 some of the most attractive homes for sale have been bank owned homes. They are usually heavily discounted compared to other homes for sale but that discount often brings with it a caveat. Repairs. It is not uncommon for bank owned homes to need substantial repairs and in many cases those repairs can make it nearly impossible to obtain financing on the home. Missing floor coverings, leaky roofs, and broken septic systems are just a few examples of items that can make a house ineligble for a mortgage. They are also examples of items that banks are seldom willing to pay to have repaired.
So what is a buyer to do when they have found the perfect home but it needs repairs? Whether the purchase is for a primary residence, second home or investment property the HomeStyle Renovation Loan from Prospect Mortgage could be the answer. This loan will allow the buyer to borrow up to 80% of the purchase price AND renovation costs for a primary residence or second home or 75% for an investment property.
Here’s how it works. Once the buyer has an accepted offer on a property, 20% of the total purchase and renovation costs (25% for investors) is deposited in escrow. The maximum loan amount is determined as the lesser of contract sales price plus total renovation costs OR “as-completed” appraised value. Underwriting will ask for a contingency reserve fund that is usually between 10% and 20% of renovation costs. While waiting for the purchase transaction to close, all bids and contractors are submitted to underwriting for approval. Once the purchase is complete repairs can begin. Contractors are paid in draws in almost the same way they are paid for new construction. The main difference is that the checks are made out to both the borrower and the contractor to ensure that work is done to the borrower’s satisfaction. At completion of the project, any part of the contingency reserve that has not been used is refunded back to the borrower.
Who should consider using this loan? In most cases this loan works best for second homes and investment properties. For a primary residence the FHA 203k Rehab loan probably makes more sense but if the repairs you want to make are really improvements then this HomeStyle Renovation loan may be the way to go.
For more details about this loan program you can call Alishia Jones at (541) 981-9407.