Renovation loans and construction to permanent 1-time close loans

With low inventory and higher prices, finding the perfect home has become more challenging. SW Florida Realtor, Billee Silva, interviews Steve Geving from Academy Mortgage who shares how Renovation loans and construction to permanent 1-time close loans may be an option in obtaining your dream home.

To learn more about Billee Silva:
www.SW-FloridaRealtor.com
Jones & Co Realty
(239) 247-2490

To learn more about Billee Silva:
www.SW-FloridaRealtor.com
Jones & Co Realty
(239) 247-2490

Transcript

Speaker Intro:

Welcome to the Southwest Florida Realty show with Billee Silva and here’s your host Billee Silva!

Billee Silva:

Hello, this is Billee Silva with the Southwest Florida Realty show.  Well, the challenge for homebuyers in southwest Florida continues as low inventory and higher prices continue to define the Lee County Housing Market. The median sale price for single family homes jumped 27.5% compared to a year ago, while condominiums and townhomes increased 30.9 percent.  Needless to say, competition remains fierce, as the local market saw an inventory decrease in January of 74.9 percent for all property types versus a year ago. Although this appears to be a national trend, because according to the National Association of Realtors, inventory of existing homes for sale across the entire United States is at the lowest level recorded since 1999, so it’s not just a southwest Florida issue. But what does this mean to you as a home buyer?  Well, you may need to explore some other options.  Today I have the pleasure of having Steve Geving from Academy Mortgage Corporation here with me and he’s going to educate all of us on renovation loans and construction to permanent 1-time close loans.  Welcome Steve, can you tell our listeners a little bit about your background and Academy Mortgage Corporation?

Steve Geving:

Hi Billee and thanks for having me. Academy Mortgage is full-service lender, we offer FHA loans, VA loans, conventional loans, but we also offer some of the unique things like construction financing and renovation loans and reverse mortgages. We offer in all 50 states, we are a full-service lender, meaning you will start with us at application, we will process and underwrite, close your loan and in the end we will most likely be collecting your payment.

Billee Silva:

That’s awesome and it’s great working with you guys because you get loans done in the strangest situations, you can always pull them off. It’s always a pleasure working with you. Especially in this crazy market, more often than not, especially in this market, buyers are struggling to find homes for sale that check all their boxes for example, I have buyers who are adamant they want a pool home, but as of this morning there are only 429 pool homes for sale in all of Lee County, and that’s all price points. I am trying to convince them to look at non-pool homes too, because they might find a home that meets all of their other requirements and they could add a pool after they take possession, but they’re worried they won’t have the cash to add a pool.  Can you talk a little bit about home renovation financing and how that could possibly be an option for folks to get their dream home?

Steve Geving:

Sure, home renovation financing is a loan that allows the borrower to finance or even to refinance a home and include the cost of the renovation all in one loan and there are multiple types of renovation loans there are FHA loans, there are Fannie Mae loans called a homestyle, there’s VA renovation loans, there’s Freddie Mac renovation loans but the most common used are the FHA 203K and the Fannie Mae homestyle renovation loan. Those are probably used 95% of the time.

Billee Silva:

Now how exactly does home renovation financing work? For example, lately I’ve had a lot of deals fall apart because of roofs because so many insurance companies don’t want to insure shingle roofs that are more than 10 years old, yet sellers are like, there’s nothing wrong with the roof, I’m not putting on a new roof.  Would a renovation loan be a solution to this conundrum? 

Steve Geving:

Ya sure can. A renovation loan really is no different than any other type of loan, meaning the same four pieces to every mortgage puzzle will apply, meaning they have to have adequate income, adequate assets, adequate credit, the only really difference is on the valuation of the property. On a regular home, somebody’s going to, a regular home that is already completed, they’re going to have an appraiser come out to the property, look at the condition, size, location, etc. They’re going to determine what it’s worth by what other homes in the area have sold for that are similar to that property. On a Renovation Loan the only real difference is they’re trying to appraise a property that is going to be, could potentially be, very different aft the improvements have been done to it. So, the key to it is to give the appraiser the information up front by showing them if you are going to put a pool on the property, or you’re going to put a new roof on the property, or you’re going to do cabinets, or flooring, or lighting, or electrical, or if you’re going to add a mother-in-law suite, it’s important to let the appraiser know in the very beginning and give them documentation about what’s going to be changing to the property so that they will be able to appraise the property as if the work had already been completed. So, you had mentioned roofs and right now you are right, so many homes insurance companies have been very tough on the age of the roof. I’ve seen some insurance companies who won’t finance a property that has a roof that is older than five years, some say they won’t finance, give insurance, on a property that ha a roof on it that is older than ten years, so a lot of people are turning to the renovation loan to combine the cost of not only the house but to combine the cost of a new roof to be put on after closing and have that financed versus just paying for it out of their pocket before closing.

 Billee Silva:

So that’s a great benefit, but what are some other benefits to going the renovation loan route, rather than a conventional loan?

Steve Geving:

I guess there is no perfect house out there. When you take your clients hopping, I think people like houses but there is always something the want to change, at least in most cases. So the benefit of a renovation loan is that they actually have the ability to take that house and make it their perfect home. Like I said earlier, no matter whether that’s doing improvements by doing a new roof, adding a swimming pool, putting cabinets, knocking down a wall, putting an extension on it, whatever that might be, but they have the ability to take a house they live, maybe don’t love, and turn it to the point where they love it.

Billee Silva:

Which is very important in this market, and I can’t stress that enough to my buyers, so I’ve been really pushing the renovation loan lately just for that reason.

Steve Geving:

Yes, it’s definitely hard to find properties out there. In some cases when you add in, you said there were 400 and some that had swimming pools, if you break that down to a specific price there might be ten homes available in a five square mile radius.

Billee Silva:

If you’re lucky.

Steve Geving:

If you’re lucky. So, when it’s all said and done, you’re trying to figure out how to make one of those five homes in the area they want to live their dream home and in most cases since there is no perfect home to begin with it makes at a little challenging with so little inventory. I guess you have to be pretty lucky to be the perfect home and, in the area, and price range they want. This allows them to actually take a home and make it their dream home.

Billee Silva:

And I don’t think the average person is even familiar that this option exists.

Steve Geving:

Ya, not a whole lot of people are and the first thing through people’s mind is how much is that going to cost.

Billee Silva:

Right. 

Steve Geving:

The answer to the question, like I said earlier this product is available. The majority of loans close either under FHA 203k or conventional homestyle renovation loan. The FHA has as little as 3 ½ % down payment, the conventional is traditionally 5% down payment or greater, but there are options where you can do 3% down. So, imagine buying a home, getting money to renovate it and only having a 3 ½ % or let’s say 5% down payment.

Billee Silva:

That’s awesome, absolutely awesome. And another thing since we have limited inventory to choose from and everything tends to be a multiple offer situation these days, a lot of my buyers are contemplating building.  What is a construction to permanent one-time close loan?

Steve Geving:

A construction to permanent one-time close loan is basically a construction loan that gives people money to build their house. In the past, it used to be if you wanted to build a home you either had to have cash or you would turn around and go simply with a construction loan which is like a line of credit, and you pull money from the line of credit every single time something needs to be done to the house. After the home was completed and you used your construction loan to do so, then you had to completely requalify for a second loan for your permanent financing on the house that would last for the next fifteen to thirty years. So, the one-time close gives you the ability to close on the loan one time. One set of closing costs, one qualification and gives you money to build the home and then once the construction is completed it automatically modifies to a thirty-year fixed, or twenty-year fixed, or fifteen-year fixed, whatever you want it to do. And that benefit, I mean a lot of things could happen, construction right now is taking a lot longer to do. Construction of homes is taking a lot longer today than it did two years ago, so a lot can happen in ten, twelve months. People could lose their jobs, people could accidently miss a car payment, so their cred scores drop There’s a lot that can happen and could you imagine if you were doing it the old fashion way and qualified for one construction loan and then after the home was complete you had to go and qualify for your permanent financing and pay off that construction loan. You could probably imagine if somebody had a blip in their credit or if somebody loss their job or became self employed recently or did something during that twelve months the next thing you know hey don’t get their home. So, this way it gives the chance to close one time, one qualification, one set of closing costs. It makes it a lot easier.

Billee Silva:

And less to go wrong.

Steve Geving:

And lest to go wrong, and a lot can go wrong in this world, we all know that.

Billee Silva:

Especially when it’s taking a year or longer to build homes these days.

Steve Geving:

It is, it’s definitely taking a while to build them, but on the other note, it’s taking awhile to find them too. If you’re looking at something that’s existing, you could be looking a long time as well.

Billee Silva:

True. Very, very, true. Now, how much money do you need for a down payment with this type of loan?

Steve Geving:

We offer construction of permanent loans with FHA, so that leaves, FHA has a 3 ½ % down payment. We offer them with conventional, we insure through Fannie Mae on these construction loans. We have 5% down. We are weeks away from having our VA available, construction to permanent one-time close loan which will be zero down payment.

Billee Silva: 

Wow, nice.

Steve Geving:

Now, you do have to pay your closing costs and pay for your insurances, you know, your home insurances and flood insurance if you have I, but the down payment is zero VA, 3 ½% FHA or 5% for conventional.

Billee Silva:

Now, do you have to own the land, or can the construction loan be used to purchase the land too?

Steve Geving:

That’s a good question because if you own the land, if you own the lad for one day, we don’t treat it as a new purchase of a home, we treat it as a refinance. When we treat it as a refinance, we no longer go off the cost or acquisition of the house and the acquisition of the land, we actually go off the appraised value. Again, you only have to own the land for one day on a conventional loan and we can go off the appraised value and the benefit of that is, let’s say you’re building a home for $400,000 and the land is $100,000, so it’s a $500,000 project, so if you’ve owned the land for at least one day, one we can use all the equity you have in the land and two we can go off the appraised value and if the home appraised for more than you’re building it for all that additional equity can be used to pay for closing costs, you used for your down payment affectively getting you in the home for even less money so if you don’t own the land you can buy the land at the time of closing on your construction loan. So, you go under contract just like normal, you pick out a lot and you write a contract, then you apply for your construction loan. Once your construction loan is approved and you go to the closing table the very first disbursement from our line of credit is to pay off the land. So, the day you’re closing on your construction loan is the day you’re paying off the land that you’re under contract with.

Billee Silva:

Gotcha

Steve Geving:

So, does that make sense?

Billee Silva:

Yes, very cool. Now, are there any special requirements for credit?

Steve Geving:

A little bit, we require a 60 credit score or above. FHA will technically get you down to a 580 or above but that’s very difficult to get qualified. With any construction financing that we do it has to have a 680 or above credit score no matter, that’s an FHA loan, VA loan or conventional loan.

Billee Silva:

Wow, this has been very informative.  Thank you so much for joining us today.  If our listeners are interested in getting pre-approved for a loan, whether it’s a renovation loan, construction to permanent one-time close loan, conventional loan, FHA, VA, etc. how can they get in touch with you? 

Steve Geving:

They can reach me at Steve dot Geving, that’s G as in George, e, v as in Victor, ing at Academy Mortgage dot com, or just call me at 239-321-1395

 Billee Silva:

Wonderful, thank you again Steve.  And thank you to our listeners for tuning in today. Remember to share our podcast with your family and friends and if you have a real estate topic you’d like to learn more about or guests you would like to have appear on the show, please do not hesitate to reach out to me, I’d love to hear your recommendations.  Until next time, stay well and make it a great day!

Speaker’s closing remarks:

 Thank you for listening to the Southwest Florida Realty Show with Billee Silva. To learn more about Billee Silva go to www.sw-floridarealtor.com.  That’s www.sw-floridarealtor.com.  Or call 239-247-2490.