Innovative Mortgage Program Helps Homeowners Purchase ‘Handyman Specials’
Posted by Laura Nelson on August 1, 2010
First Choice Bank, a full-service community bank with locations in Geneva and Wheaton, is introducing an innovative lending program for what many refer to as “distressed” properties–homes that may have been vacated in less-than-pristine condition, and have deteriorated from lack of maintenance. Many of these homes on the market today lie vacant, not for want of buyers but for lack of adequate mortgage programs.
These properties appeal to first-time buyers for their attractive selling prices, providing the opportunity of home ownership to many who otherwise might not qualify for a mortgage on a home in a desired community or neighborhood. Prospective home buyers can’t obtain financing because due to low appraisals and loan-to-value obstacles in distressed property transaction.
The last two years of economic downturn, brought about in part by loans made to buyers who couldn’t afford and shouldn’t have qualified for them, have made most lenders slow to innovate new loan programs and more so on loans for distressed properties.
Rehabilitation mortgage programs such as the FHA203K and Fannie Mae Rehab Loan were designed to address the unique obstacles of financing distressed homes, but the application and approval process is a complicated and lengthy one–often many months.
To help move these homes off the market and into the hands of waiting buyers, First Choice’s new mortgage program dramatically cuts the time from offer to close, provides liquidity to the borrower to repair/rehab the home, and reduces or completely removes interest rate risk for the homeowner during repair. As importantly, First Choice developed it to help rebuild communities hard-hit by the recent economic downturn and escalated home foreclosures.
“We’ve all–Realtors and lenders–had transactions derailed by a home that cannot pass appraisal review with end lenders, or suffered through the multi-month process of an FHA 203k,” noted Chris Freemott, First Choice Bank Vice President/Manager, Residential Mortgage Lending. “We think we can change this and help our communities rebuild.”
Much like FHA 203Ks, First Choice’s lending program provides funds strictly for non-structural changes/repairs: paint, carpet, appliances, roofing, HVAC changes, fixtures and traditional remodeling needs such as cabinets and vanities. Loans do not allow for structural rehab such as removal of walls, additions, completions, decks (other than cosmetic repair or for safety issues), pools, spas, fences and other “cosmetic” or lifestyle-enhancing features.
Freemott said that First Choice is also removing the lending limits ($35,000 for FHA and Fannie Mae, for example) and can fund the acquisition loan very quickly. It will review each deal on its own terms rather than industry terms which tend to be much more restrictive.
Borrowers will be required to make an initial investment, which will be a percentage of the final value (acquisition plus improvements) at the closing. For example: A home is purchased for $100,000 needing $15,000 in repairs with a final assumed valuation of $150,000. As lending standards require the lender to only use the acquisition price plus rehabilitation expenses as the value, an FHA buyer would be required to invest a minimum three (3) percent of $115,000, or $3,450.
Borrowers can also take advantage of the new First Choice Bank mortgage program if they are using another form of financing such as 20% down, 80-10-10 loan, mortgage insurance or IDHA loans.
“And, to ensure that these rehab projects are completed properly,” said Freemott, “we will be providing general contractor oversight to relieve the borrower from the challenges of project oversight.” Though homeowners may not act as their own general contractors, they may choose to work with the First Choice GC to purchase supplies, or on their own.
Chris Freemott can provide details of First Choice Bank’s distressed properties lending program. He can be reached at (630) 845-2827 or online at www.firstchoicebank.com. First Choice Bank is an Equal Opportunity Lender.
Tags:Money, Real Estate
