Howdy, LOs!
It's been a while! I'm so glad to be back from paternity leave, part of which I spent fixing up my house. I painted a few rooms, replaced a sliding glass door, removed a wall and realized that there were so many more projects to come over the next few years – new floors, an updated kitchen, two bathrooms, etc. It's a lot, and it makes me wonder whether I should finance a big renovation project instead of doing small jobs piecemeal over the next five years.
Luckily, I have you guys to offer insights into the reno loan market and what to look out for.
I'd like to share a bit of feedback I received from some LOs who specialize in reno loans. There's much more to it than the FHA 203K and the Fannie Mae Homestyle products.
Kevin Dwyer, an LO at SouthState Bank in Atlanta, said he does about $30 million-plus in reno loans a year, and it's generally not the traditional renovation loan products – it's reno loans for purchase deals where clients are working with a custom builder, or where they are looking to do a major renovation to their current house.
"This has been very popular with my client base as people can renovate their current house, stay in the neighborhood, and use the future appraised value to limit funds needed to close," Dwyer said. "They get to pay an interest only payment during construction so that helps if they have to move out and pay rent while the house is being built. It has also been good for those looking to buy as they can buy a property that might not be the best house, but they can then turn it into what they want. I also allow them to lock in the interest during construction so they have interest rate protection during the build and it's a one time close so they only need to close once."
One LO who specializes in reno loans in California said that most originators are not willing to deal with a reno loan product when there's so much low-hanging fruit to be picked. It's only when the markets tighten up that reno loans gain steam, he said.
"The real opportunity is the refi market now," he said. "When prices get so stretched vs affordability, many existing homeowners decide to stay put. However most are unaware that 203k or HomeStyle or any other renovation products are available for them to remodel or add on to their existing homes. In my opinion and experience, the majority of lenders tend to overlook this untapped market. People stay where they're at, kids stay in the same school, commute to work is the same (or convert/build a home office for those who now work remotely), add energy efficient items such as solar, room addition, etc. Plenty of business to get with renovation."
Another LO, based in New England, said that with today's inventory shortage, plus all the rate volatility, this is a great moment for reno loan products.
"Many homes that are now available have issues that need to be addressed for code, health or safety issues," he said. "All of these things can be cured with the Fannie Homestyle, Freddie Choice Renovation, FHA 203k Limited or FHA standard 203k. Also, today's buyers want more modern amenities in their homes right away and renovation loans get that done; including adding more living or bedroom space and upgrading kitchens and baths."
James Kleimann
Managing Editor, HousingWire
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