As most US real estate markets face increasingly tight inventory levels, existing-home sales are dwindling across the nation and mortgage closings are taking a hit.
According to a recent report from the National Association of Realtors®, total existing-home sales fell to a seasonally-adjusted annual rate of 5.08 million in February from 5.47 million in January. For those of you keeping score at home, that’s a little over a 7% decrease. Furthermore, the Mortgage Bankers Association’s latest report on weekly application activity showed yet another decrease (week ending March 25, 2016).
“Sales took a considerable step back in most of the country last month, and especially in the Northeast and Midwest,” said Lawrence Yun, NAR Chief Economist. “The lull in contract signings in January from the large East Coast blizzard, along with the slump in the stock market, may have played a role in February’s lack of closings.”
“However, the main issue continues to be a supply and affordability problem,” Yun continued. “Finding the right property at an affordable price is burdening many potential buyers.”
Expanding the Options
One possible solution may lie in simply thinking outside the box when it comes to “the right property.” Oftentimes, buyers get discouraged when they can’t find the home of their dreams so they end up putting off a purchase all together. Instead of letting them throw in the towel, some real estate and mortgage professionals are recommending buyers find a home that has the potential to be what they want. Financing the purchase with a renovation loan can help buyers turn a “fixer-upper” into their dream home.
Renovation loans can allow buyers to finance the cost of a home purchase as well as repairs, renovations, updates and add-ons. This can often be a win-win solution, as it opens up buyers’ possibilities and help them find an affordable home that they can modify to meet their personal style. Real estate agents and mortgage professionals can also benefit from renovation loans by opening up opportunities for business in a sluggish market.
While there are several different types of renovation loans, a popular option is the FHA 203(k) loan, which lets buyers finance the purchase of a home that needs improvements as well as the cost of those improvements in one loan. While the FHA 203(k) loan does not cover so-called “luxury improvements” such as adding a pool to the property, it will cover a wide range of projects that can greatly contribute to the home’s value. Covered improvements include additions to the home, bathroom and kitchen remodels, new HVAC systems, painting, plumbing, flooring and more.
If you would like to learn more about 203(k) loans or other renovation loan programs offered by AFR Wholesale, please feel free to view our Program Matrix or sign up for one of our upcoming 203(k) Webinars.
Photography by [Hasan Eroglu] © 123RF.com
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