,

Remodeling financing

Several options are available for construction financing. The first option is a new first mortgage intended for rehabilitation finance – the programs are called HomeStyle and 203k, are offered by Fannie Mae and FHA, respectively, and allow up to 97% of the as-completed value of your home in total financing. The benefits to these programs are that you can do one loan instead of two, they are 30-year fixed loans, and potentially provide for all of the rehab funds that you will need.

The second option is a construction line of credit. With a construction line of credit you can keep your existing first mortgage and add a credit line for the improvements. The benefit with a construction line of credit is that it uses the as-completed value of your home. The disadvantage is that it has to be refinanced when the construction is done.

The third option is a home equity line of credit. The benefit to a home equity line of credit  is that you can keep your first mortgage as-is. The disadvantage is that the interest rate is variable, and the current amount of equity is all that is available to borrow.

It might be helpful to get the details of your existing mortgage together with the amount of improvements that you want to make and then we can put figures to this.

As-completed value compared to current value

The as-completed value is an estimation that an appraiser will make based upon the improvements intended for your home. When an appraiser does an as-if appraisal based on an as-completed value, he or she will want to see a bid from a contractor detailing the improvements that will be made. The appraised value that is calculated is then based upon the physical attributes of your property with the to-be-completed repairs included compared to other homes in the area that have sold recently. If the as-if value supports the improvements that are going to be made then financing is available for the project as long as other qualifying criteria are met (credit, income, etc). An example of a repair/improvement that drives value is a kitchen remodel. A repair that doesn’t necessarily drive value is painting to change the color of the property. The appraiser is looking for material changes to the property that drive value. The current value of the property is determined without any of the potential improvements being completed.

Fannie Mae Homestyle

This program allows for financing of renovation/repair funds. The loan amount can be up to 97% of the as-completed value. The financed repair costs cannot exceed 75% of the as-completed value. What this means is the loan program can be used to purchase or refinance a home and include funds to complete the purchase or pay off an existing mortgage.

Here are some commonly asked questions on details:

https://www.fanniemae.com/content/faq/homestyle-renovation-faqs.pdf

The benefit to Homestyle over the FHA 203k program is that mortgage insurance is not required if the amount of financing doesn’t exceed 80% of the as-completed value. If mortgage insurance is required (loan amount > 80% of value), then it comes with options.

Fannie Mae loan limits apply (currently $453,100 for a single family home in MN), and the application must gain approval through the Fannie Mae automated underwriting system. Contact us for details on what we need to submit the application.

FHA 203(k)

FHA has two programs under the 203k umbrella. The 203k Full allows for major remodels that include structural changes (additions, tearing down walls, etc). The 203k Limited does not allow for structural changes, but includes the ability to finance most other types of repairs/improvements.

FHA 203k Limited allows for up to $35,000 in included financing for repairs. Some of this goes towards construction inspection costs, title updates and potentially permits (unless the contractor obtains them). This amount also needs to cover the contingency reserve, determined by the age of the property, and is generally 10-20% of the repair estimate. We advise keeping the contractor bid below $27,000 if you plan to finance all of it.

FHA 203k Full allows for up to $100,000 in repair costs, again including inspection/title and contingency reserves, but also including the cost for a HUD inspector/project manager.

FHA loan limits apply for these programs, currently $356,500 in MN for a single family home (higher for multi-unit homes) and FHA underwriting applies. Contact us for details on what is needed for approval.

, ,

Selling and buying in a seller’s market

We have had many clients lately that have needed or wanted to sell their current home and buy another, so we wrote up some tips about buying and selling your home in a seller’s market.

Selling Your Home in a Seller’s MarketSelling your home in a seller's market

The sell side is generally the easier part (though it may not seem that way as you are painting and boxing up all your belongings getting the house ready for market). The market is currently a very strong seller’s market, which means offers contingent on the sale of another property are not as strong.

Buying a Home in a Seller’s Market

We work with our clients to devise a plan for getting approved for the next purchase without having to sell their current home, or strategies for interim financing to utilize your current equity towards the purchase of a new home. In addition to this, with all the constraints this process has, we as your lender will be flexible to meet timeline demands, concurrent closings and can assist in getting contingent offers accepted.

Planning early is never too early and we can help devise a specific strategy for you to make the transition.

,

Documenting Assets for Closing on a New Home and Deposits

When I talk about documenting assets with new borrowers, I often get questions like: “why do I need to document funds for closing” or “why do I need to show where this deposit into my account came from?” It is required of borrowers to source all deposits into documented asset accounts over a certain amount or cumulative amount, depending on the loan program guidelines.

How long do I need to document assets?

Generally, we only document the last 60 days’ period of the asset statements (last two months’ bank statements). Deposits not only need to be explained, but they need to be sourced as well.

What kinds of deposits should I document?

For example, if I see a deposit into a bank account for $1,200 it is required that we have a copy of the check and proof of the source. If the funds came from a relative, it is considered gift funds and must be eligible under loan program guidelines. If it is from the sale of an asset, it is required to provide a bill of sale and copy of the check. If the funds are wired in, the source needs to be documented (letter from the company explaining why they sent funds).

Many times funds wired to an account show where they are coming from (IRS, company payroll, etc) and then we don’t need any further documentation. Sometimes the deposit can be “backed out” of the statement ending balance if the source cannot be documented (cash, for example, cannot be traced/sourced), other times that asset account can be deemed ineligible as a source for closing funds.

Bottom Line: use caution

Bottom line, if you plan to purchase a home, be careful about the money going into your account for 2 months leading up to the underwriting. Mortgage investors have strict guidelines in regards to documenting funds for closing as this is an area where fraud has frequently occurred in the past.

, , ,

Fannie Mae and Freddie Mac 3% Down Payment

Fannie Mae and Freddie Mac have recently reintroduced the 3% down payment conventional programs. Many benefits are available for home buyers with these programs including reduced rates, reduced mortgage insurance and, of course, a lower down payment!

Some differences between Fannie Mae and Freddie Mac are as follows:

Fannie Mae 3% Down Payment:

  • Purchase or rate/term refinancing only
  • Homebuyer education is required
  • At least one buyer must be a first time homebuyer
  • Single family, primary residence only
  • Down payment assistance loans allowed (must be a Community Second)

Freddie Mac Home Possible 3% Down Payment:

  • 680 minimum credit score
  • Homebuyer education is required
  • None of the buyers are required to be first time buyers

Watch our informative overview video here:

,

Why no affordable new construction in the Twin Cities?

Home builders have had a tough go the last 5 years. Part of the issue now is finding the labor source to do the construction. Many small home builders tell us that their laborers are all in North Dakota working on the oil pipeline. The other difficulty is in available land for development. You would think that we have plenty of places to build new houses, but consider the infrastructure needed for a new housing development in the suburbs. It takes time and resources to create a space for a home to be built, and up until 18 months ago we had very little demand for new homes.

Most of the new construction you might be seeing around the Minneapolis/St. Paul urban areas is well in excess of $300,000 as available land is scarce inside the 494/694 loop, and the costs of removing the previous structure drive the final price up. Demand in this market is also strong, which pushes prices up as well.

If you are looking for an affordable new construction home, are you willing to expand your geographic area beyond the metro? Many new construction homes closer to $200,000 are available if geographic areas further from downtown Minneapolis/St. Paul are an option.

, ,

Why Use Zillow?

As a mostly-inclusive, online real estate search engine, Zillow offers users more information than most real estate web searches. Not only does it incorporate the active listings on the MLS, but also simultaneously shows pre-inventory data.

This pre-inventory is information on mortgages that are in default, or have been to foreclosure auction, and may be becoming available for sale soon. It also has a function for homeowners to list their home for sale without enlisting the services of a Realtor and gaining an audience by doing so.

Users can request information on a home directly from the listing agent in many cases and see a good amount of information on that home, the neighborhood, the other recent sales nearby, the schools, parks, amenities, transportation and property taxes.

One lesson I learned in my elementary education was to always consider the source when reviewing information. It is important to know where the information is coming from, who puts it there, and if it is accurate.

Over the years I have noticed accuracy issues with some of the data, the Zillow Zestimate tool, and foreclosure actions specifically. The last few months I have been searching for another investment property opportunity in my neighborhood, and in comparing Zillow foreclosure data with Hennepin County Sheriff’s Department data I have noticed discrepancies.

My advice – start a search with Zillow to get information, but rely on a licensed Realtor when buying or selling a home. I’m excited to see this tool grow, and the monitoring they have in place on their real estate forums is great, and the service they provide in connecting home buyers with professionals is unparalleled in our industry.

Go to Zillow’s Bloomington Page

See our reviews on Zillow here

Steve Furlong on Zillow