Can A Half-Completed Remodel Get Financing? Why Homes Were So Much Cheaper In 1950

In 1950, the median home price was $89,300 (adjusted for inflation), and it was only 3x the average income.

The median home price today is a whopping $430,000, and 7x the average income.

BUT – an average new 1950 home was a 983-square-foot plywood box, with two tiny bedrooms, one bath, no AC, and a tiny garage (if you were lucky).

Today’s average newly built home is 2,700 square feet – and far nicer in every way.

In addition, regulatory compliance now accounts for 25% of the cost of every home.

So, it’s not just inflation and government-subsidized mortgages that have pushed up home prices.

I stole this from Graham Stephan’s excellent email newsletter that I highly recommend subscribing to.

Can a Home in the Middle of a Remodel Get Mortgage Financing?

Grok says “no,” not without an escrow holdback or some sort of rehab financing – but Grok is wrong.

Sidebar: This is a perfect example of Gell-Mann Amnesia. When we read news or info about our own industry, we often find errors. But yet, we still trust those sources for news about other fields (maybe I should cite Grok less in my blogs 😊).

Properties in the middle of a remodel can still get financing as long as:

1. The property is habitable, meaning there still has to be a functional kitchen and a functional bathroom.
2. The property is marketable, meaning that it can’t be so torn up that I can not be marketed for a reasonable price as a habitable home
3. There are no health and safety issues, e.g. exposed wires, uncapped plumbing, empty pools, missing floor coverings, missing railings, etc.
4. The property can still appraise if no value is attributed to the portions of the home that are under construction, e.g. if a home is a 3/2, but one of the baths is completely stripped down, it will be appraised as 3/1.

We see this situation surprisingly often with our refis; appraisals will come back with photos of torn-up baths and kitchens, and borrowers will invariably say… “you didn’t tell me my house had to be a house…”

What Can Borrowers Do if Their Homes Are Too Torn up to Get Financing?

If a property does not meet the above criteria, they have several options.

1. Complete the remodel with cash on hand – if they have it – and just do the minimal work necessary to satisfy appraisers and lenders.
2. Get a Home Equity Line Of Credit (HELOC) that does not require a full appraisal (just a “drive by”) or any appraisal for that matter – and use it to complete the full remodel. We have an excellent HELOC resource that never requires appraisals.
3. Get a rehab/construction loan. FHA, Fannie Mae, and Freddie Mac offer these. These loans, though, are a bit of a pain to get, requiring bids and extensive paperwork. The rates and fees tend to be higher too.
4. Ask for escrow holdback, meaning that enough money to complete the remodel will be held in escrow and distributed once the work has been certified as completed by a third party. Unfortunately, though, very few lenders allow for these, so escrow holdbacks are not a reliable solution.