Why You Should Consider Renovating a Home
Renovating a Home
Is the low inventory of homes in the Richmond area is making you nervous that nothing will come up you want to buy? Or maybe it’ll come up and be gone so fast you never even have a chance to see it? I get it. I've been hearing this from buyers a lot lately; so, let’s talk about alternative home buying options in a low inventory market. There are two other options that people reach for in a low inventory market:
Option 1: New construction⠀⠀⠀⠀
When inventory is low and the type of homes or size of home you want may not be available new construction is one of the first alternatives that comes to mind. In order to get the home, you'd like building becomes the best option for some. Building is great; it means having a newly designed home inside and out with the newest features and best mechanics. Building a brand-new home does come with a premium though and you'll be subject to building wherever the builder you like is setting up a new neighborhood.
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Option 2: Renovate a Home⠀⠀⠀⠀⠀⠀⠀⠀⠀
Sometimes the location of available new construction homes isn’t the ideal spot. Maybe the neighborhood is too far out or the builder in the neighborhood you like isn’t right for you. This is where one of my favorite options comes in - renovating a home. Renovating a home has a lot of benefits.
1. You often will get more for your money compared to new construction. 2. You can choose a neighborhood closer to your ideal area. 3. you get a refreshed home. 4. You aren’t paying the profit margin of a home that’s already been renovated and is now being sold to you.
That’s a win-win in my book. I know what you’re thinking, “I don’t have the money to renovate a home, Jess.” That's okay! There are wonderful loan programs out there made for these situations. You don’t have to have all the cash on hand to do the renovation work. I talked about how this works a little in my #QASunday InstaStory (I saved it in the highlights for you.) The short of it is this - there are several loan programs for renovating your own home. Some you may have heard of are 203K Loans, HomeStyle Loan, or another version of a renovation loan. Each of these loan types has different perameters and details - like down payment required, credit score, etc. - but in general they allow you to borrow up to a certain amount and this amount can include the purchase of your home plus the budget for the renovations.I am not a lender so of course I recommend you discuss these loan options in further detail with a licensed loan officer. There are many things to know about renovation loans but here are a few of the most important things you need to know:
These loans do require some sort of down payment. Most banks will require a 3.5% down payment (203K Loan) or 5% down payment (HomeStyle Loan). Most banks cannot provide a 100% financing option for renovation loans.
You cannot use this loan if you plan to do the work yourself. These loans are not meant for DIY projects. The additional funds that will be reserved for the renovations will be taken through what's known as a "draw." This draw has to be made by a Class-A contract who has a track record of building or renovating homes. This is meant to protect you and the bank from losing money using someone who has no experience with these types of loans or with renovations. The lender will send the contractor you are choosing a packet to fill out and then approve them before the loan is funded.
The funds cannot be used to furnish the home. Aka you can't go buy that perfect Crate & Barrel couch with the funds for renovations. Renovations will be defined pretty tightly by the bank.
You are agreeing to only take the money for renovations. You cannot use the money for anything else. That's considered fraud and can land you some serious jail time.
You will start making payments on this loan the same as any other home loan. When you purchase a move-in-ready-home you close, skip a month, and then start making payments. This loan will be the same but you likely won't be living in the home yet. So, it is best to crunch some numbers to be sure you can afford to live in your current spot while your renovations are being done and pay the new mortgage at the same time.
Renovating a home can be a wonderful alternative to building or settling on a home you don't love. Don't get me wrong, renovating comes with its own set of highs and lows, but I have found the process to be similar to building. You just need a team to guide you - a good REALTOR®, a good lender, and a good construction manager. If renovating a home sounds like something you'd be interested in shoot me an email and lets talk a bit more.
Happy Hunting,
Jess