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When Renovation (203k) Loans Are Not Practicable

when renovation loans aren't practicableRenovation loans, also known as “203k” or “Homestyle” loans, are an awesome resource for properties that are badly in need of major repairs or updating.

These loans allow buyers to finance major home improvements with their initial purchase money mortgage by increasing the mortgage to cover the cost of improvements.

For major repairs required by flood, fire or vandalism damage, for example, these loans are often a necessity, as the loans represent the only way buyers can obtain competitive financing.

But, renovation loans are not a good option for minor repairs or updating.

This is b/c renovation loans have higher rates and fees, they take longer to close, and they require a lot more paperwork (contractor bids, plans and specs, underwriter approval, special appraisal, etc.).

Buyers frequently ask us about renovation loans when they are bidding on homes in need of minor repairs (new floors; partial kitchen remodel, etc.).

If the buyers are very tight on cash and adamant about the repairs, we will encourage the use of renovation financing.

But, if the buyers are not exceptionally tight on cash or if the repairs can wait, we always advise buyers to instead put less money down and/or get a large closing-cost-credit from us.

Borrowers can then use the saved cash to make the repairs or improvements after close of escrow.

This allows buyers to get better financing up front, to do a lot less paperwork, and to make a more competitive offer with a much faster close.

It also allows buyers to take more time on their improvements to make sure they are done in a satisfactory manner.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 335646