Home Buying in 78028>Question Details

Dmwhitmire, Home Buyer in

If a home does not have central air, can I add that cost into my loan?

Asked by Dmwhitmire, Tue Mar 13, 2012

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Piggybacking off of what Dee Dee just said, I've found that most Realtors and other loan officers who downplay the use of Renovation financing either a) doesn't do them (lender reference), b) don't like to work with them (they add additional time to closings), c) can't offer them (lender reference), d) have had a bad experience with them (realtor reference -- usually because the loan officer didn't set expectations properly).

Typically the 'negative' connotation that comes with renovation financing is the result of one of the above statements. Having worked at another major lender who did/does a lot of renovation financing, I can assure you that not every loan officer does the volume of these that the experienced, successful renovation specialists do (and for good reason usually). I'd say, probably 20% of my business are clients who think their loan officer has insufficient experience (the client knowing more about the process is a dead giveaway) and are looking for an expert to close their loan. I've heard the horror stories from Realtors and clients alike and seen it with my own eyes (co-workers having no idea what they're doing or giving poor advice).

Like with anything, you have to get experience to 'have' experience but most clients would prefer not to be a loan officer's guinea pig. If you like your loan officer enough to suffer through the mistakes that come with learning a new product, more power to you, however, the typical borrower won't have this patience/loyalty.

Finding a good renovation specialist is the key to getting your renovation loan closed with the least amount of frustration/headache/hassle, whether you're in Florida, Alaska, California, Illinois or anywhere in between.

Jim's comment about the central air is somewhat correct as if you look at the interest paid on it over time, it's significant with respect to the original cost of the item but if you're only looking at it from that perspective, you'll miss the bigger picture. The buyer who wants to finance just the CAC as Dee Dee pointed out probably can't afford to cough up the cash to do it upfront otherwise they would and they wouldn't be asking us for information. Rates are at historic lows now, sacrificing some monthly savings to get essential items (I would hate to be without Central Air in Texas) is worth it to most borrowers. I see clients everyday charging up credit cards with 10-20% interest rates and not paying them down, I find that more illogical than financing something small like Central Air to improve the quality of life in a home they're purchasing. Someone buying a house for instance, in good shape minus a failed pressure test might get a 203k just to repair a plumbing issue that may cost 5k to fix. There's no other way for that borrower to close on the home other than to pay cash for it, I could go on and on and on with examples. Bottom line, if you can afford to fix it post-close AND can get by the appraiser/underwriter without fixing it and not put yourself in a financial bind, it may be better to pay for it out-of-pocket but otherwise it's a worth while option to consider.

Ok, I'll get off my soapbox now, find a good Renovation Specialist if you're looking to do a renovation loan to purchase and renovate or even refinance and renovate.

If you have additional questions, Dee Dee and myself would be happy to respond to them in this thread or privately via email.

Best of luck!
Web Reference: http://RobWeber.com
2 votes Thank Flag Link Tue Mar 13, 2012
It is unfortunate that Tim and Jim are so negative about the FHA 203K program. I have exactly opposite opinion. I believe i would rather buy the right home, in the right community or school system...or whatever....and custom design it to make it mine. The 203K (streamline or full) will allow you to add as much, or as little, renovation to the property as you would like. Of course, there are things the lender will require (plumbing, roofing, flooring, etc); however, beyond that the sky is pretty much the limit (up of 110% of the after improved value).

I find Tim's comment that 203K's are "difficult at best" baffling. First, loan qualification guidelines are exactly the same for a 203K as a regular FHA loan. Second, getting contractor bids and inspections are not that cumbersome if you are working with a 203K mortgage specialist. The loan closes just as any other loan and the disbursement of funds is handled by the lender, post closing.

And, as far a Jim's comment that it will be the most expensive central air you ever bought, I don't know that I agree. First, I assume that you cannot afford to purchase the central air for cash, don't have (or don't want) credit card access, it is unlikely that you can get a HELOC on a new purchase, etc. Since you live in Texas, I also assume not having central air would make for some very uncomfortable months in the home. All that said, a 203K loan is usually 1/4 to 3/8 percent higher in interest rate than a regular FHA loan. With today's rates, I think you would find the increase in rate has a modest effect on your payment. And, if you only need, or want, the central air; there would be no need to hire a FHA consultant on the project. Simply get bids from the HVAC professional and give them to your loan officer.

In short, talk with a mortgage professional who is knowledgable and experienced in the 203K process. Have him/her work up the figures for you and make a comparison between the 203K and any other financing options...then you can choose the one that is right for you. The issue I see often is that some mortgage consultants to not have access to the 203K (less than 5% of lenders offer the program) and, therefore, they are negative about the product and/or the consultant does not understand the product themselves (resulting is the same "nay-saying".

You might check with you mortgage professional to see if they do EEM (Energy Effiicient Mortgages) also. They are even easier than the 203K and may well accomplish your goals also. Best of luck to you.
2 votes Thank Flag Link Tue Mar 13, 2012
There is a 203k streamlined loan where you can add up to $35,000 in repairs. You don't have to work with a consultant to write up a complicated plan, and your Realtor shoud be able to refer you to a lender with 203k experience. However, depending on the cost of your central air system, some lenders offer a 203(b) FHA loan which can allow up to $5,000 in escrow for repairs. If your only desired repair is the A/C, I'd would also consider a quick home improvement or even an equity loan after closing.
Barbara Coker
Licensed Mortgage Loan Officer
100% Home Loans All Over Texas
Web Reference: http://www.thecokerteam.com
0 votes Thank Flag Link Tue Mar 13, 2012
It looks like you got your moneys worth in the answers you received. I concur that the FHA 203K program looks like your best option. However since you are possibly rural, you should also check into the USDA Section 502 program. This is the USDA website I have listed.
0 votes Thank Flag Link Tue Mar 13, 2012
I agree with Rob.....

I can do them but I don't know a lot about them.
Most lenders will talk them down if they cannot offer them.

Fact: They are more expensive than a regular purchase loan.

However: They are great for the right scenario.

Tom Burris
Mortgage Banker
(214) 763-4629 cell/text/nights/weekends(Really!!)
Lending all across the entire Great State of Texas!!
NMLS# 335055
Search Dallas area MLS for FREE. No registration => http://www.ntreisinnovia.net/cgi-ntr/BR_login?0501134
0 votes Thank Flag Link Tue Mar 13, 2012
It all depends on the type of the loan. Ask your mortgage officer about the different types of loans that you might be qualified for.

Good luck.

Albert Elhage

(512)971-1773 (Mobile)
(512)327-7449 (Fax)
0 votes Thank Flag Link Tue Mar 13, 2012
Not unless you are using the loan Tim mentioned below, or buying a HUD repo. If you are going to use the 203k it would be the most expensive central air you ever bought. HELOC or home improvement after you own it, good luck,
0 votes Thank Flag Link Tue Mar 13, 2012
Most loans will not allow something like this, but an FHA 203K does. The 203K has loads of rules and things that must be done in certain ways making them difficult at best to deal with, but they do allow improvements to be made. Find a lender that can do a 203K and go from there.
0 votes Thank Flag Link Tue Mar 13, 2012
It will depend on what type of loan you are getting. The best person to ask is your loan officer. They can prequailify you at no cost and after looking at your credit and financials let you know what types of loans you may quailify for and if this is possible.
Web Reference: http://www.ScottSellsNH.com
0 votes Thank Flag Link Tue Mar 13, 2012
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