Interest rates usually do NOT go down in election years.
I blogged about this in December – Rates Do Not Fall In Election Years – but I am hitting it again because I am hearing the myth repeated over and over in podcast land – as if it is an absolute fact.
Rates go down in election years less than half of the time. I encourage skeptical readers to revisit the blog I linked above or review the Fed Funds rate history on the FRED website.
Save the Renovation Loans For Your Refis
We have become experts at renovation loans, such as FHA’s 203k or Fannie Mae’s HomeStyle renovation loan.
As a reminder, these are loans where plans and specs for improvements are submitted with the loan – so borrowers can garner additional funds (often in excess of the purchase price) to finance improvements.
The appraiser sees those same plans and specs and appraises the property “subject to completion,” meaning that he estimates the value of the property with the assumption that the improvements are complete.
Sometimes renovation loans are necessary at the time of purchase. Particularly when properties are in such poor condition that they are not inhabitable or financeable.
Drawbacks Of Renovation Loans
BUT – there are drawbacks to renovation loans:
- Sellers are sometimes reluctant to accept offers that include renovation financing because they take longer to close;
- Renovation loans require a lot of time and effort upfront (inspections, plans, specs, lining up contractors, etc.) and that cost and effort goes to waste if transactions end up not closing for any reason; and
- Buyers are often forced to come up with improvement solutions in a hurry and that prevents them from being able to take the time to do everything to their exact liking.
Hence, buyers may want to consider buying the properties upfront with standard financing – and then getting a renovation loan via a refinance after close.
If a property has major structural issues, traditional financing will not be available – so a hard money loan may be the only option (and thus not available to buyers with little cash).
But if a property just has cosmetic issues, a renovation loan via refinance after the purchase closes is often the far better way to go.
