December Real Estate Roundup: Renovation Loans, Lower Multifamily Down Payments

The high-demand housing market, filled with bidding wars and low inventory, has many buyers thinking “outside the box” when it comes to their home purchases. Let’s look at a couple of options: renovation loans and purchasing multi-unit properties with tenants. 

What Is a Renovation Loan?   

Let’s say your buyer… 

• Can’t seem to find the existing home they want 

• Has found a home they love, but it needs updates for safety, codes, or comfort 

• Has a flexible timeline and is comfortable making some repairs after closing 

• Wants a more accessible home 

A renovation loan helps upgrade an existing property to accommodate new homeowners’ wants and needs. It transforms the not-so-perfect home into that just-right property your client can enjoy for years. 

How Do Renovation Loans Work?  

Renovation loans come in Conventional, VA, FHA, and USDA options just like standard loans. We can also roll the costs into one loan (single-close) so buyers won’t face two separate debts. As always, good credit, employment, and assets are important factors. 

As with a standard purchase, the same guidelines apply (loan-to-value, down payment, etc.). But each loan program also has its own guidelines, specifically around renovations. Ask me for more information about specific guidelines, but the general rules-of-thumb are as follows:  

• Depending on the loan program, buyers can enjoy single-close, 15- and 30-year, fixed-rate options. 

• They’re typically for primary residences only. 

• Updates must be performed by an approved and licensed contractor. 

• Loan amounts are based on the “as-completed” appraisal value.  

• Renovation loan interest rates can be a little higher – but your buyer is adding value, and they can refinance later. 

• Buyers will need a flexible timeline/living arrangements, as repairs do not begin until after closing 

• Renovation loans begin at $5,000 and can be used for lesser repairs and updates up to around $35,000, or for larger renovations, up to the loan limits in your area. However… 

• VA Renovation Loans have some extra requirements, including: 

  • Contractors must be registered with the VA (or are willing to do so). 

  • Can only be used for repairs or upgrades that improve safety and liability; no cosmetic or major structural changes. 

  • Loan amounts capped at $50,000. 

How Does My Buyer Get Started? 

Once your buyer finds a home and has their list of repairs ready, they’ll apply with Atlantic Bay just like any other mortgage. An appraiser will provide the property value and an estimate of how much the total repairs will cost, and thus the total loan amount. After your buyer closes the loan, the repairs begin, and that value starts growing! 

Buying a Multifamily Home 

Your buyer does not need to be some big real estate investor to consider purchasing a “multi-unit” (multifamily/duplex/triplex/quad) home – they simply need to occupy one of the units themselves.

And new down payment guidelines from Fannie Mae now make it even easier. Fannie now accepts 5% down payments for owner-occupied 2-4 unit homes. It’s a huge opportunity for your buyers, as the previous requirement was 15-25%. Buyers can also purchase multifamily homes with FHA and VA loans (USDA not permitted). 

How Big Can They Buy? 

You know what a single-family home is. But a 2-4 unit multifamily property means the units, like apartments, share walls but are self-sufficient dwellings with their own bathrooms, kitchens, entrances, and utility meters. (Why 2-4? Anything over five units is considered commercial property and requires a commercial loan.) 

Better yet, your buyers can purchase a multifamily property, rent out the other units, and use that forthcoming rental income toward qualifying. While managing a multifamily property comes with additional responsibilities, your clients will have a home of their own, and incoming monthly rent to offset the mortgage while they gain equity. 

I’d love to help your buyers with non-traditional approaches to purchasing. Just give me a call!