The housing market certainly has gotten hotter in the twin cities. Does anyone remember the good old days, back in 2010, right after the First Time Home Buyer credit expired? It seemed like properties wouldn’t sell, even if you filled them up with $100.00 bills and beer. I remember this because, I had a house, I was trying to sell and I put it on the market back in May of 2010 – bad timing.
Now if you have a move in ready house, on the market, it is likely to be swept up right away, with many properties going into multiple offers.
But what about those – not so move in ready – homes? The homes with the ugly, golden shag, carpet left over from 1960. What about the homes with ugly and not so functional bathrooms and kitchens. What about the homes with 30 years of delayed maintenance or the foreclosure that has been sitting on the market for a year or two or three.
Last year the market saw a rise in the number of buyers using renovation loans – either the FHA 203K or conventional rehab loans. Sixty percent of these people had projects that were under $25K. Towards the end of 2012, as more and more banks started other renovation loan programs, it is not uncommon to see projects that are over $100K and some even getting up into the $200K.
What does this mean to Realtors in the Twin Cities?
As the move in ready homes are snapped up or bid up, buyers are more likely to buy homes that need updating and do these updates to their tastes.
Three things are happening, in the market, right now that make this the ideal time for the 203K or the renovation loan.
1) The move in ready homes are being bid up, to appraised value or slightly above the appraised value
2) Interest rates are low and the rehab costs are at the same rate as the mortgage rate
3) People want to have equity in their homes. Investors and flippers are buying homes, doing repairs to them and selling them at market value and making a profit. Many first time home buyers want to buy a property that needs upgrading, upgrade it to their tastes and have a home that has instant equity.
Most renovation loans or 203K loans that I have seen done, result in the owner having a house that is worth 10% to 20% lower than the appraised value. In fact, we are working on one home where the appraised value came in $50,000 over the cost of the house plus the rehab costs. Another one in the northern suburbs had an appraised value $20,000 over the cost of the home plus the renovation costs.
Imagine helping your buyer walk in to instant equity.
The 203K or renovation loan is not without some drawbacks though. The main drawback is that there are more working parts to a renovation loan. This can cause the loan to take longer to process. Most of these delays are minimal if you use an experienced team of loan officers, contractors, and inspectors.
For more information, on how to make the renovation loan process go smoother, check out my blog post from July – Does a 203K really mean delayed closings and commissions?