Oakland Real Estate News

When it comes to the desires of home buyers I've been hearing more of lately; "something with a Granny Unit", "must have an in law suite", "need an additional room or garage conversion" and so on. Even when going to the weekly marketing meetings Realtors more and more are asking if anyone has listings with these features. In reality these home features have been around for years and are common in the Bay Area. Now that rent has risen the extra living space is definitely desirable to those looking to supplement their mortgage expenditure, but one must also consider our senior and elderly population. The need for senior housing has always been around. But with the extreme rise in rents in the bay area (and everywhere else for that matter) the need is even greater due to affordability.

So what are some options for these homeowners or buyers? A few come to mind, but would depend on the situation.   

The FHA 203k loan may be a good option for those looking to purchase there first home and perform upgrades/repairs prior to moving in. This program can also be used by homeowners for deferred maintenance and/or upgrades. These loan types offer one consolidated loan which combines a principle loan amount (money for the purchase of the home) with the amount the borrower will need for repairs. This allows the borrower to repair what they want right away as well as only have one payment for everything. This is an FHA loan, so the qualifications may be more strict than other programs but as far as credit, all you need from what I know is a 620. NO CREDIT? NO PROBLEM! They can use what they refer to as alternative credit or non-traditional credit in which a person is able to qualify with proof of on-time rent payments for the prior twelve months in addition to 3 other accounts that have been paid on time within the same time frame. 

Buying a home below market value may sound easier said then done but they're out there. Normally if a home is being sold for less than market value it needs a considerable amount of work done. This is where buying real estate gets risky, but this may be an opportunity to add an in-law unit feature in addition to getting other necessary repairs done and furthermore possibly getting a deal! It can be a daunting task trying to get financing for fixer homes. And if it is an investment property the whole twenty percent down requirement is not working in the buyers favor either. In some cases if there is a conventional loan being used certain repair needs can slip through the cracks. If the home is bought for a below market rate through great negotiations for needed work by their Realtor, the buyer may have the opportunity to get a Home Equity Line of Credit or a HELOC. This allows the homeowner to draw funds on the equity of the home usually up to a stated market value. So let's say the home was purchased for $325k, but if it were repaired it would be worth $360k. The HELOC would allow the homeowner to draw up to $35k ($360k-$325k=$35k) for whatever repairs (or anything else) the owner needs. This can be a great way to finance an in-law unit.

Fannie Mae now offers a conventional fixer upper loan referred to as the Fannie Mae Homestyle Renovation Loan. This option allows homeowners flexible down payment options and is available for owner occupied or second home purchase/refinance for 1-4 units and investment purchase/refinance for 1 unit. Very similar to the FHA 203k loan the borrower will still have a consolidated payment. This loan will allow the borrower up to 50% of the after-repair value for their renovations! It even allows for certain renovation related costs to be wrapped into the loan as well. Some of these costs include inspections, architectural costs, permit fees, reports, appraisals and engineering to name a few. You can even do some of the work yourself and be reimbursed for the materials! This is definitely one to consider if doing a big job. 

Hard Money Loans aren't for amateurs and I honestly wouldn't recommend them for most. They can be a means to an end however for those with no equity in their home or dings on their credit. Usually the terms are not the best so if this route is to be taken it is strongly recommended to have a good plan. In the case of building an in-law unit there may be reason to move forward with hard money. A good one in my opinion would be if there was a particular long-term tenant in mind that were desiring to rent the completed unit at a considerable return. If the monthly return on the unit in addition to the amount of value added to the property with the addition is worth it to the owner (everyone's circumstances are different) then hard money just may work. But it would be best to ALWAYS use caution when getting a loan like this as the word loan shark goes hand in hand with them.

Whatever your repair needs or renovation desires it is best to always consult a licensed professional no matter how small the job. Use your best judgement when using handymen and unlicensed service providers. They are not always a bad option and can usually save money. Just know the risks and get as many guarantees and warranties as possible. Also don't be afraid to get creative and consider trying something new. 

Good Luck!
Posted by Harold Thomas Jr. on January 28th, 2016 10:26 PM

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