Dawn Ferreiro (NMLS 1048123), Great Western Home Loans,  Member of CCAR’s REALTOR®/Lender Committee

Unfortunately, distressed or extremely outdated properties are a common conundrum in the real estate industry. Often times when this occurs the sellers believe their only option is finding a cash buyer. What if there was another way to market these properties on the MLS? What if there was a way that the property could receive multiple offers rather than the traditionally low-ball cash offer? Good news, there is!

Positioning the listing on the MLS under “Proposed Financing” as eligible for FHA 203K financing or Conventional HomeStyle Renovation financing is a great way to open the property up to a wider audience of potential buyers.

Providing architectural renderings at open houses showing the property as upgraded along with information on rehabilitation loan products is a great marketing tactic and can spur the potential buyers to see a property’s potential. Many times, the property just need a little TLC and many families are eager to customize and love their newly and specifically renovated home.

Homes with foundation issues, handy man specials, corporate or bank-owned properties, short sales, foreclosures, and just generally unloved homes are just diamonds in the rough, and statistically speaking 83% of buyers would like to change the house they are forced to buy because of limited inventory.

These rehabilitation loans are a win/win for all involved.

Please keep the following in mind regarding these products:
  • Typically, rehabilitation loans will require a longer closing.
  • Self-help is not allowed and the contractor cannot employ the borrower. Contractors must have sufficient liability coverage for the project (check with your lender regarding minimum coverage).
  • Contractor bids must itemize and describe all work along with separate line items for labor and materials, permit fees must be included as well.
  • A HUD consultant is required in many instances (consult your lender as this requirement depends on the scope of the project). The main purpose of a HUD Consultant is to advise the client (buyer) of repairs that are necessary to bring the property to minimum property standards.
  • Appraisers will be provided the contractor’s bid in order to deliver a report with an “after-improved” value (changing out the color of tile or upgrading carpet, etc. will generally not result in the sought after “after-improved” value, the change would need to be considered a true upgrade for an outdated home or updates for items in disrepair).
  • Investment properties allowed with the HomeStyle Renovation Program. However, flips are not allowed so it would be for investors wanting to keep the property as a rental.