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!
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.
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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.
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