Mortgage

The 411 on Renovation Loans with Movement Mortgage's Duke Walker

While most buyers want a turnkey new home, many have dreams of finding and updating that fixer upper (thanks, HGTV) or, more commonly, can’t find that “perfect” property in their market due to limited inventory and/or budget.

Fortunately, if you don’t have the extra cash to put into updates (which is not uncommon with real estate prices in the DC area), there are financing options that let you tackle everything from a basic kitchen or bathroom update to more extensive renovations. To shed some light on these, I caught up with Duke Walker of Movement Mortgage, a native Washingtonian and current Capitol Hill resident who has helped hundreds of families in the region with their mortgage needs.

Walker

Walker

With limited inventory in the DC area, are you seeing more buyers considering and purchasing homes that they want to make renovations to right away? What mortgage options are there for those that may not be in a position to self-fund those?

Yes, there has been an increase in buyers looking at homes that are in-between “shell/unfinanceable” and “turnkey/brand new.” At Movement Mortgage, we offer and specialize in many renovation loans, which allow people to finance the purchase of the property in additional to the construction work needed to update the house to their specifications.

Can you briefly explain the different types of renovation loans and who they work best for?

There are renovation loans offered by FHA (203k), Fannie Mae/Conventional (HomeStyle) and the VA (Veterans Affairs).

There are two types of FHA loan, 203k Standard and 203k Limited. Both loans require only 3.5% down payment. Standard covers many “major” repairs, such as structural repairs, moving or altering a load-bearing wall, or even knocking the house down to rebuild it as long as you leave part of the existing foundation intact. 203k Limited covers a max of $35,000 toward repairs. This loan type is intended for less intensive changes or updates such as roof repair, replacement of HVAC systems, flooring or minor remodeling work.

The conventional reno loan is called HomeStyle. It has a minimum of 5% down but no minimum renovation cost required. HomeStyle also has an option for investors. It can be used on a single unit property with all renovation work allowed, including luxury additions, and a minimum down payment of 15%.

Download a chart comparing the various renovation products, courtesy of Movement Mortgage.

What are the major differences in the process between a “standard” mortgage and a renovation product?

The primary difference is that a renovation loan requires a bid from a licensed contractor detailing the work to be done on the home. That bid has to be completed prior to an appraisal on the property. An appraiser will inspect and review the house in its current condition, as well as review the bid from the contractor in order to come up with what’s referred to as the “after improved value.” Often times, waiting on the bid can push the timeline out 7-10 days further than the “standard” mortgage approval process.

Click the image to download.

Click the image to download.

Can anyone do the reno? Could the borrower or a family member complete the renovation?

The work has to be done by a licensed contractor and that person cannot be the buyer or a family member of the buyer.

Are there any frequent misconceptions buyers (or agents) have about renovation loans?

The typical misconception has to do with the length of the process. It does not have to take forever. Most of our renovation loans go to close in 30-45 days, sometimes sooner. If the contractor is on board and motivated to do their part, there’s no reason it should take more than a month to close.

How can current homeowners take advantage of these options, whether they are planning to sell or not?

These renovation products can not only be used in a purchase transaction but also in a refinance. For example, if you wanted to put $30,000 into a kitchen remodel but don’t have the equity position for a HELOC (home equity line of credit) or extra cash lying around, you could roll that cost into a mortgage and build equity!

Is there any final advice you have for buyers, in general, looking to purchase in the coming year?

Don’t be afraid to get your hands dirty with a property. Some of the best deals out there are livable homes that just need a little bit of love. And don’t be afraid to talk with a mortgage lender such as myself. We don’t judge people. Our job is to guide and consult you from beginning to end of the home buying process. It never hurts to see where you stand financially and what possible loan products might be available to you.

Thank you to Duke for sharing his experience and knowledge, and feel free to connect with him on Facebook, Instagram and Twitter, or reach out to him for your specific questions and needs.

What to Know When You Are Selling & Buying: Q&A with Greg Kingsbury

In the Washington, DC area, it's not uncommon for homeowners to climb the property ladder, gaining equity over time and upgrading to a home that better fits their longer-term needs (instead of buying that forever home from the start).

Kingsbury

Kingsbury

Some owners will hold onto their first property as an investment but many will want or need to sell it to move onto their next house. In a less competitive market, having a contingency around the sale of a home is not uncommon but, in this region, it can make getting your offer accepted more challenging. However, there are options...and we tapped into the expertise of local lender Greg Kingsbury, who leads the Kingsbury Mortgage Team at Caliber Home Loans, to answer some of the most common questions when looking to sell and buy in short order:
 
What is the #1 question or concern homeowners come to you with when they are looking to sell their current home and buy a new home?

Of course all situations are different so many prospective borrowers will have different questions based on their individual scenarios. If I had to narrow it down to a single question, it would be how to qualify for a home prior to selling their current home. Most of the time this is based upon wanting to declutter and make minor improvements to their home so it looks best and will command the most value on the sale.

The advice that seems to get thrown around the most is to just go get a bridge loan. I find that most clients are told to go get one, but don’t really know what a bridge loan actually it is.  Many think it is some kind of magical loan that just gives you your equity to allow you to buy something new. The truth I find is that most people won’t qualify for a bridge loan. When getting a bridge loan, you have to qualify carrying your current mortgage, the new mortgage and a payment on the bridge loan. There usually also are substantial costs to the bridge loan, generally in the form of a few points paid on the amount (in addition to closing and recording costs). The other common misconception is that you can get a bridge loan for all of your equity.  Most providers of bridge loans don’t want to exceed 80% of the value of the residence you are departing inclusive of any outstanding debt.  

So, what options are available to sellers who are looking to qualify for and finance their new home purchase? 

There are several options to consider when trying to qualify to move up and buy a new home. There is the bridge loa, but often times, as noted above, that doesn’t work or isn’t cost effective.

There is a lot of misinformation out there, so do yourself a favor and talk to someone that is local and, even better, someone that has been referred.
— Greg Kingbsury of Caliber Home Loans

The second option is doing a lower down payment with the intention of paying down that loan after closing with the proceeds of the sale after the departed residence sells. This is usually accomplished by a principal reduction followed by a loan recast. (A loan recast is when your loan servicer re-amortizes your loan after a large principal payment.) Usually the minimum required for a recast is $5,000. This allows you to get a lower payment without having to refinance your loan and allows you to keep your current interest rate. The recast just takes your new principal balance and adjusts the payments to still keep the original loan maturity date.

A third option is a combo loan. This is where you have a first and second mortgage with the intention of paying off the second mortgage after the sale of the departed residence leaving you with just the single first mortgage. 

Aside from working with a top-notch agent, what recommendations do you have for your clients who are looking to "move up"?

Do your homework upfront and budget accordingly. Make sure you get all the numbers and consider things on a worst-case scenario. You never know if the market is going to turn, and you have to hold onto a property longer than anticipated. Consider backup plans in the event you can’t sell. Find out what the rental market would command for your property. Would you be able to carry both payments if you had to hold onto it and rent? 

Are there any potential pitfalls when selling and buying as it relates to mortgages? If so, how can clients avoid or minimize the chance of these?

The only pitfall I can think of is not having everything reviewed up front to make sure you really qualify for what you are hoping to get into. You may have your credit pulled and someone take a quick look and think everything is ok but, if they aren’t asking questions about the total picture, you could all of a sudden not qualify. If the debt ratios are close and a bank is only looking at a credit report and not asking if there are additional items such as condo fees, taxes not included in the mortgage, child support/alimony, etc., it could look on paper like you’d fully qualify and once all the pieces are put together you end up not qualifying.

This can all be avoided by being upfront about everything and making sure that the lender you speak to has the full picture when they are reviewing your file. 

The DC area real estate market is competitive and buyers often need few or no contingencies to win with sellers. How do you work with a buyer’s agent to strengthen their offer?

We try to get as much information at the beginning to make sure that there are no concerns with their ability to get financing. If there is an option to waive contingencies, this definitely helps win offers. However, waiving contingencies can put borrowers in a difficult spot and prove to be very costly if something were to go wrong. But, with the right questions asked and the appropriate documents supplied and reviewed, these risks can be mitigated to protect the borrower while also allowing them to present the strongest offer possible. We’ve been able to help buyers with financing beat out all cash offers with these strategies. 

What is the best piece of advice you have have for prospective homebuyers today? 

Take some time to set up a call with a trusted loan officer before you go out looking at anything. You should be able to have a conversation about your individual situation and get a real understanding of your options. From there, ask for scenario sheets to show you perspective loan options.

There is a lot of misinformation out there, so do yourself a favor and talk to someone that is local and, even better, someone that has been referred. A random contact from the Internet has no vested interest if they steer you wrong or something goes wrong. They can just move on to the next online lead. A local person lives on the referral. They have a more vested interest to see you succeed as their livelihood depends on satisfying each customer to keep the referrals coming.

Thank you to Greg for sharing his experience and knowledge, and make sure to connect with the Kingsbury Team on Facebook and Twitter for more mortgage insights.

Avoiding First-Time Home Buyer Flubs

There's nothing more exciting than making the decision to go from tenant to homeowner, but buying your first home can be daunting (the number of legal documents and signatures required before you even go under contract can be maddening enough).

Home with Key on Wood.jpeg

At times we all fancy ourselves chefs, handy(wo)men and more thanks to technology, social media and a generous dose of can-do spirit, buying a home is a big decision and commitment. While a wealth of information and tools — from seemingly up-to-the minute listings arriving in your inbox to mortgage calculator apps — are a great start for the novice, this is one area where a dollar spent (specifically on a real estate agent), will net more than that in one or more ways.

It's true there are about as many tales about challenging first-time home buyers as there are about annoying agents, but I find working with first timers enjoyable and rewarding. For that reason, I thought I'd share a few myths I have had to debunk with clients if you are considering starting your search:

  • Pre-qualification or pre-approval...it doesn't matter which I choose. If you are looking to buy in the Washington, DC area, you will likely face stiff competition. One of my key roles as a Realtor is to help you make the most competitive offer, and financing is a big component of that (we include a copy of your pre-approval letter in your offer). Before you walk in the door, you should know that you have the ability to buy that property if it's "the one." Pre-approval is one step beyond pre-qualification and means your lender has done due diligence and is even more confident that it can handle your mortgage needs (giving the seller confidence that if they accept your offer the deal will close).
     
  • As long as I have the money in time for close, I'm set. With the high price of real estate in the area, often clients are relying on family loans or gifts to help them with closing costs. As a part of the pre-approval process, you will need to document the sources of your funds, and extra scrutiny is usually placed on funds that haven't already been in your bank accounts for at least a few months prior. This means it's wise to have the funds in place as soon as possible and to be prepared to provide a loan agreement, letter or other documentation (sometimes from the person lending or gifting the money) in order to have your loan underwritten.
     
  • Every renovation is created equal. In the local market, many buyers want properties that are new construction or that have been recently updated. While those white kitchens with quartz countertops look amazing in the photos, not all updates are created equal. Look at the quality of the finishes when you visit the property and for signs of cutting corners (which sometimes can also been indicative of shortcuts taken behind the fixtures and walls).
     
  • New is always better. While I caution first-time home buyers against biting off more than they can chew (financially, maintenance-wise, etc.), some buyers are open to renovations — from a fresh coat of paint to kitchen and bath updates. If you can look past outdated fixtures, you may get your hands on a great property that others have passed over. Whether you have the cash in hand or are considering a 203k loan, make sure to add a healthy buffer in terms of budget and time to your plans. 
     
  • It's only a starter home... When you buy a new home, you invest more than just the down payment at closing. For this reason, it usually is beneficial to own property for several years before selling. If you think you are going to stay in the area, you may want to expand your search to find a property that meets your anticipated future needs (or that could). For example, if you are thinking of starting a family, you may want to find a home that allows you to not just comfortably raise a baby but also a young child (and that takes into account their educational needs). If your budget does not allow you to buy as much house as you know you will want (with the features you want), look for properties that may need cosmetic updates you can do over time or that have a lot that would allow you to expand the house to add livable space. 

As I mentioned at the top of this post, technology, social media, a can-do spirit and even a blog post are not substitutes for a professional. If you are (or know someone) thinking about buying your/their first home, please reach out!

Amber Harris is the owner of At Home DC and a licensed real estate agent with Keller Williams Capital Properties working with clients in DC, Maryland and Virginia. 

When Perfect Isn't Available or Affordable

Perfection. While we all realize it's in the eye of the beholder and can be overrated, when you are looking for your new home, it's where we start. 

When I am meeting with a buyer, a good portion of our initial discussion involves their must-haves, needs, wants and nice-to-haves. While there are many reasons to hire a real estate agent to help with your home search and purchase, having a partner and consultant to regularly remind you of your motivations and musts is one of the top reasons.

In the DC metro area right now, we still are experiencing limited inventory (aka available houses), which means it is even harder than normal for most to find their perfect home. Given this, it's easy to get discouraged, especially when you find "the one," make an offer and lose out to another. But...that doesn't mean you should lose hope; rather, you should open your eyes to other possibilities.

In the past few days, I've talked to two buyers who have chosen/are looking at two alternative paths that often are ignored:

1. Buy & Renovate with a 203(k) Loan: While most people want to offer, close and move in as swiftly as possible, you can gain the edge and equity if you consider buying a property that needs some work to make it livable, to your taste or both. In today's "need it now" culture, finding that hidden gem means we might be able to negotiate a better purchase price and you'll get exactly what you want in the end. With lots of 203(k) loan options that allow you to access the cash you need to renovate (everything from a kitchen remodel to full gut job), if you can muster some patience, you can land that perfect home. (Check out Lauren Bowling's experience for more insight.)

2. Explore New Construction: If you have even more patience, you might want to consider designing and building your new home. While the DC area is much more densely populated than other areas of the country, there is available land (or land that can be made available by razing a poorly maintained/unsalvageable structure. Most home builders offer a range of plans that can be customized in countless ways to help you get just what you want - from layout to finishes. And, while a builder may tell you otherwise, you should make sure you have buyer representation with your own agent before heading into a sales office. (Learn more about the process from The Balance.)

In either scenario, a REALTOR® can help you consider all the options and direct you to qualified professionals to help you create your own brand of perfect. So, would you consider a rehab or new construction?

Amber Harris is the owner of At Home DC, an interior decorator and a licensed real estate agent with Keller Williams Capital Properties working with clients in DC, Maryland and Virginia.