Renovation loans for your dream home

Real Estate Review

Like most REALTORS®, I work with both buyers and sellers. On the buying side, homebuyers in the Peninsula market right now — no matter what the buyers’ age or price range — seem to prefer to purchase renovated, like new “move-in ready” properties. Often this is attributed to the impact of HGTV, which is now recognized as THE most important trend driver (or “influencer” in the modern jargon) of interior design trends. Without question, properly priced properties with a “wow” factor — updated baths, new floor coverings and stainless/granite kitchens — will sell much faster than homes of comparable size and age that have not been updated. And that holds true even though these homes may be in excellent condition and are appropriately price-discounted for their lack of updates.

So what is a buyer to do, if they can’t find their “HGTV dream house,” but may have found a dated home that is in their desired community and neighborhood — an alternative that is priced right, but definitely needs remodeling to meet their needs? If it is just a matter of updating cosmetics and paint, that is a minor inconvenience that just needs a bit of imagination and will take a few evenings or weekends of effort. But what about the homes that need contractor kitchen and bath updates, new floor coverings throughout or perhaps a new roof? How can a buyer get a dream house out of a property that might not look like the right kind of dream? There are several options:

  1. Seller pays for the buyer-desired improvements, with contract price raised above listing price to cover the agreed-upon improvements. The buyer makes decisions regarding color and material selections. For the buyer, this is a great way to go. The benefit to them is that improvements are made prior to closing and move-in, and priced into the appraisal and loan. For the seller, it may not be a best bet. Besides the cash flow issue, and managing the work to be performed, the risk is that the improvements may be too tailored to a specific buyer’s taste. If the deal falls through for any reason, the seller needs to find another buyer — and hopefully isn’t carrying the cost of the improvements on a credit card balance!
  2. Buyer purchases home for an appropriate “as-is” condition and completes the improvements after move-in. This is the best option for the seller, but it is difficult for many buyer families to do major renovations of kitchen and baths while living in a property. Additionally, most buyers just do not have the substantial funds needed for immediate upgrades after purchase, unless they have significant cash (perhaps due to downsizing from a much larger home).
  3. Buyer purchases the home using a renovation loan, such as an FHA 203-K, or a conventional or VA renovation loan, that allows funds for significant updates (such as a stainless and granite kitchen, new wood floors, new roof, etc.) to be borrowed in the first mortgage for the home purchase. Typically these improvements must be bid prior to the appraisal and final loan approval, and all work must be completed within a set time after closing. Renovation loan products will vary by lender and type of loan, but will typically carry common sense stipulations, including use of licensed contractors (no owner performed projects) and structured billing and invoice reporting requirements.

In many transactions, a renovation loan may be the best option for both buyers and sellers. The seller has a clean sale with no inconvenience from last-minute contracted work and bears no risk for the renovations that the buyer desires. For buyers, the renovation project cost is tightly limited by the contractor’s bids and the lender’s requirements, and the total package loan purchase cost may be even lower than a fully move-in ready “HGTV home.” Additionally, most lenders require work to be completed within a set time interval following closing. By delaying their move for a month or two, this work can and should be completed prior to a family move-in.

One of the biggest benefits of renovation loans to buyers is that their search inventory of potential homes can be expanded significantly, providing them with a lot more options for consideration. With a renovation loan, just about any appropriately sized and located home can be a “move-in ready HGTV home” for a smart and thoughtful buyer. Ask your agent and lender about renovation loans!

About John Brooks 9 Articles
John Brooks is a Realtor® with Howard Hanna William E. Wood at its Port Warwick office. He can be contacted at 757-813-0160 or by email at

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