I have been a renovation loan specialist for years and have begged every employer that I’ve had for one thing, a jumbo renovation loan. I have finally gotten my wish and the high-end, luxury market has a new financing toy.
There’s always been a huge gaping hole in the renovation loan market. Falling into that abyss were high-end consumers looking to buy or refinance homes that need mortgages outside of FHA or conforming loan limits. In many higher cost states, like California, mid-range buyers were sucked into the renovation black hole as well.
When the private mortgage market disappeared in 2006 Fannie Mae and FHA stepped up to the plate and provided an outlet for higher cost areas by raising their loan limits from $417,000 an $271,000 respectively. In many areas those are still the loan limits and, per recent developments, they are going to return to pre-2007 levels.
As it stands right now ‘high balance” loan limits in places like California, DC, New York and Hawaii at currently $625,500. If you’ve ever checked out homes in those markets then you know that severely limits your choices unless you have significant assets to invest in the down payment. [rant] A reduction in those loan limits would be high on the the list of moronic housing decisions that FHFA have laid out in the past couple years.[/rant]
In order to protect ourselves and customers against the foolishness of policy makers in Washington, we decided that a new loan product was in order and the JUMBO RENOVATION MORTGAGE was born. Less than a month old demand is high as buyers earnest seek the home of their dreams in housing market that is utterly devoid of inventory. It’s tough on buyer and tough on agents who are seemingly a day late on the most desirable homes.
With renovation financing you don’t need the perfect home, just a good home in a good location. You do the rest with your own personal touch and you end up with the perfect home, your dream home.
Jumbo Renovation Guidelines
Since this is a one of kind proprietary product we decided that we’d roll the product out conservatively. As we start to see more statistics on default rates and customer trends I expect guidelines to expand. As it stands, here are the current underwriting parameters (some exceptions may apply).
Maximum Loan Size – $1,500,000
Max Renovation Amount – $150,000
Occupancy – Primary Residence ONLY
Max LTV (Loan to Value) – 80% Purchase, 75% Refinance
Reserves – 6 Month PITI (PITI = 1 Mortgage Payment + Escrows)
Major Derogatory Credit (Foreclosure, Bankruptcy, Deed in Lieu) = 7 Year Waiting Period
Clearly we are looking for a well qualified buyer. If you are buying a million dollar house and hoping to use a mortgage then that is probably not a surprise.
If you’ve had some major derogatory credit or just don’t have the assets then we can always explore other renovation options that will get you into the home (like the 203k or HomeStyle) then use the power of time to build equity and assets to pursue a jumbo renovation refinance. We know the renovation market backwards and forwards, creativity is one of our strong points.
The $150,000 max renovation escrow will be limiting to some customers too, but once again creativity financing is possible. Say you plan to add a 2nd story, fully renovate the main floor and build a pool. The contractor bids you are getting average $300,000 for the full project – $150,000 for the addition, $100,000 to renovate the main floor and $50,000 for the pool.
We could help with either the main floor + pool or the addition. Both would add tons of value which would allow you to come back 12 months down the road and do a renovation refinance (using after repair value) to do phase two OR, in some cases, you just added enough value to get a home equity line (based on current value) to finish out the remainder of the renovation.
Guidelines are guidelines and borrowers fit into them and not vice versa. Square pegs don’t fit in round holes unless you take a buzz saw and some sandpaper to them. That’s actually the fun part for us, making things work through experience an creative knowledge.
Have questions? Ready to move to application? No problem, we are here to help. Simply click on the link below and fill out the contact form OR give us a call and we’ll guide you, answer questions and get the ball rolling.
Jonathan Blackwell – Renovation Loan Specialist