By Maggie FitzRoy, Contributing Writer
They learned how to turn any house into a customer’s potential dream home.
They learned how to accomplish that by providing options for purchasing homes that otherwise wouldn’t be eligible for financing.
And they learned how to do that by providing loan options that include the purchase price and repairs in one loan, one closing, and one monthly mortgage payment.
Realtors packed the Northeast Florida Association of Realtors auditorium classroom last month for a three-hour continuing education course called Distressed Property Solutions, taught by renovation loan specialist John Adams.
Just about every seat was filled and attendees listened intently during his PowerPoint presentation.
“I have skated around distressed properties, but now is the time to learn about it,” said Realtor Brett Watkins with Magnolia Properties. “At one point it was a niche market,” but no longer.
As a real estate agent, he said, “You need to be available for any phone call.”
Adams started by laying out facts about the current real estate market: half of the existing buyer pool is government loan based, about 52 percent of home sales are to first-time buyers and there is a shortage of available homes to buy.
Due to the recession that began in 2008, 80 percent of U.S. homes are at least 20 years old, he said, since not many were built during the bust years. And many of those have features that are no longer considered desirable.
For example, 25 years ago, it was fine to have vinyl floors in kitchens and bathrooms, but now people want tile, he said.
“We have a lot of aged stuff out there. We didn’t build houses for a long time, so there will be shortages for a few years,” he said. “We have to build new ones and we have to renovate the old ones.”
Adams laid out the details on how to use renovation financing to rehab old homes, using types of loans he said most Realtors have no idea even exist.
Doretha Washington of Florida Home Realty said she was glad she signed up for the course. She is a real estate investor and works with investors.
“I didn’t know about half these programs,” she said during a break. “It’s good information. I love this class.”
Distressed properties, as described by Adams, are not necessarily falling down fixer-uppers.
For him, “distressed” is a much broader term, referring to houses that might just need repairs or renovations to modernize them, literally turning them into a customer’s idea of a dream home that looks like new.
He outlined five types of renovation mortgages and provided a packet listing the specifics of each.
All the loans are eligible for one- to four-unit primary residences, with appraisal values based on completed repairs.
• FHA 301K (standard): Minimum down payment is 3.5 percent of the purchase price. No maximum renovation amounts as long as the mortgage is within county guidelines for FHA loans. Allowable repairs range from complete rehab, including structural changes, to new appliances.
• FHA 203K (limited): Minimum down payment is 3.5 percent of purchase price plus total renovation amount up to $35,000, including fees and contingency reserve. Allowable repairs including flooring, painting, remodeling the kitchen and bath and buying appliances.
• VA Renovation: Zero down payment for primary residence on a one- to four-unit properties. Maximum renovation amounts are up to $35,000 including fees and contingency reserve. Allowable repairs include flooring, painting, remodeling the kitchen and bath and appliances. No structural or major repairs or additions.
• Fannie Mae Homestyle (full): Minimum down payment on a one-unit primary residence is 5 percent. Maximum renovation amount is 50 percent of the home’s completed value. Repairs must be affixed and add value to the property.
• Fannie Mae Homestyle (streamline): Minimum down payment for one-unit primary residence is 5 percent. Maximum renovation amounts up to 50 percent of the home’s completed value, up to $50,000 including fees and contingency reserve. Repairs must be affixed and add value to the property.
The perception of many real estate agents is homes in need of repair cannot be financed through FHA, which is not true, Adams said.
They also fear they are too expensive, take too long to get approved or are too complicated.
“They are not that complicated,” in the hands of a competent renovation loan officer, he said.
Renovation loans are one transaction, repairs are done after closing, which can take place in 45 days.
Only one appraisal is needed, however, he recommends it be done by professionals who are also licensed as HUD experts. There is no contractors’ list that homeowners must choose from, although they must be licensed and insured.
Adams, who is regional renovation loan sales manager for imortgage based in Jacksonville Beach, gave examples of the types of renovations and repairs that can be included.
They ranged from new roofs to new floors to renovated pools and he provided tables for each.
He also showed before and after photos of his own dream home in Amelia Island, which he purchased and renovated using the techniques he taught the class.
Many lenders don’t know about these loan products, he said. And they are not for every buyer.
But Realtors should know about them, so they can give their customers options.
Watkins agreed. “Real estate agents need to know this,” she said. “So we can better help our clients.”