How to Finance Unfinished New Construction Foreclosures
All across the USA unfinished builder foreclosures sit vacant and available at drastically reduced prices. A result of the housing bust and the credit bubble, left without the money to continue, builders walked away in hordes from homes they haven’t yet finished. Nearly impossible to sell due to lack of suitable mortgage products, these homes represent some of the absolute BEST VALUE on the market. The trick is figuring out how to get a mortgage.
Conventional financing won’t work on an unfinished property. FHA 203K loans require a Certificate of Occupancy which is unattainable if the property was never finished. If you lack the funds to purchase in cash you have but one option, the FANNIE MAE HOMESTYLE renovation loan. How does it work?
Fannie Mae Homestyle Renovation Loans
The Homestyle Renovation loan works much like a FHA 203K would. You get yourself pre-approved with a Fannie Mae Homestyle approved lender like myself. You locate the property that is substantially complete, but not yet finished. Most underwriters consider “substantially complete” to be at least 75% finished. Anything less and you have yourself a construction loan, that’s a different article.
Once the property is located you get it under contract at a great price. We then submit your loan to underwriting for credit approval. While we await your credit approval we gather the contractor bids from a licensed General Contractor. We provide those bids to the appraiser who will appraise the property based on the “as completed” value. Usually, we have your credit approval before we are finished gathering the bids and getting the appraisal. Once we have that we will simultaneously work on clearing your credit conditions while we work on getting the property, contractor and scope of work approved. Once we have everything cleared through underwriting you’re ready to close. Now starts the renovation phase of your Homestyle Renovation project!
The renovation escrow account that is disbursed post close is based on your contractor bid + a 10% contingency reserve. We’ll disburse the funds in a series of draws ranging from 3 to 5. Each draw will be inspected by a third party before funds are released. Please make sure your contractor is aware that the Fannie Mae Homestyle, much like the standard FHA 203K, does NOT have any upfront funds available. You need a strong contractor with sufficient cash flow to successfully complete a Homestyle Renovation loan. Once all the work in the final contractor bid is completed you can close out your renovation escrow, from that point forward you loan works just like a traditional mortgage loan would.
Still have questions? Call or email me and I will guide you through the process. All in all if you are looking for a new home and you want it cheap, this is the absolute best path to take. You will not only get the value of a home available at a deep discount due to lack of financing, but you will also get to finish out the home with your personal touches and a contractor of your choosing!
Green Renovation Specialist