Home Loans with Renovation Money Included by Jerome Obermark, The Commercial Appeal
Shayni and Chris Fleming recently bought their first home with the help of a relatively unusual mortgage loan that covered needed, but not-yet-performed, renovations.
The Flemings moved to the United States about eight years ago from Adelaide, Australia. She is an apartment property manager, he is a physical therapist. They bought an 80-year-old bungalow on in Memphis. The two-bedroom, one-bath house has about 1,350 square feet of living space and is in need of updating. "I like old houses. It has 10- to 11-foot ceilings and hardwood floors throughout," Shayni said.
But an appraiser found the old house's electrical wiring needed to be brought up to code. And, because of the wiring and other renovation needs, the Flemings initially had difficulty finding financing to buy the house.
After months of delay by a local bank they had worked with to get a loan, Shayni called a number of other lenders. Through word-of-mouth she said she eventually found that Wells Fargo Home Mortgage had a loan officer specializing in renovation/home purchase loans. "It (the loan application process) went just as they (Wells Fargo) told us it should," she said.
The Flemings bought the house for $68,000, and borrowed $24,000 in additional funds to renovate it. Wells Fargo made them one loan to cover both.
A renovation consultant appointed by Wells Fargo looked at the property to estimate renovation needs and costs and to assess property values in the neighborhood. Then an appraiser examined the consultants' estimates and prepared an "as-completed value appraisal" before the loan was approved, said Al Cousins, renovation specialist with Wells Fargo Home Mortgage in Memphis.
"If the loan amount for repairs is under $25,000, you (the borrower) can be your own contractor. If it is more than $25,000, you need to have a general contractor," Cousins said.
The minimum loan amount for repairs is $5,000, Cousins said. However, he said the average amount for repairs or renovation of the seven loans he has made in recent months was about $22,000.
The Flemings borrowed the money with a 15-year, fixed-rate FHA (203K) loan. The interest rate was 7.5 percent. Their monthly note including taxes and insurance is about $1,041, Shayni said.
A number of mortgage lenders, including some other banks and mortgage companies, also are able to make FHA 203K loans for renovation/purchases and renovation/refinances. Many also make conventional loans that allow repairs and renovations to be financed into a new loan.
The two have different limits and options, Cousins said. "Conventional renovation loans generally are more lenient and flexible. They are open to investors... . FHA requires that the property be owner-occupied."
Conventional renovation loans also allow some luxury improvements such as hot tubs and in-ground swimming pools that FHA will not permit.
FHA's 203K renovation/purchase program has been around since 1962. But it wasn't used very much until the late 1980s and early 1990s. The FHA program originally allowed investors to use it, too. But abuses occurred and FHA revised the rules and restricted it to owner-occupants.
Resources Home Resource Center
Wells Fargo Home Mortgage, Inc.
Toll Free Phone: 800-956-4442
URL:
www.wellsfargo.com/home_center/index.jhtml
FHA Loans
Click
here for additional details on the FHA/HUD Web site.
US Department of Housing and Urban Development (HUD)
Website:
www.hud.gov
The Commercial Appeal newspaper
The Commercial Appeal
495 Union Ave.
Memphis, TN 38103
Toll Free Phone: 800-444-6397
URL:
www.gomemphis.com
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