Renovation Loans - An Opportunity for Buyers!

[00:00:00] This is the agent mind podcast. I'm your host, TJ McGraw. Uh, hopefully, y'all like the new intro music. Um, I had to change it up a little bit. Um, I don't know if I just got bored of it or if I felt like it needed, some spicing up, but I like it. I'm into it. Love to hear your feedback. Um, get ahold of me, reach out, send an email. Uh, find me on Facebook, all that stuff. Um, yeah, we'll get into that in a second. But, uh, so this episode, I, I try to do, I'm trying to do a segment. Um, so I have like a segment of like news or opportunities or something like that. Um, kind of, kind of like a current events segment at the beginning of the show. And then like we get into the meat of it. In the second part of the show, but, um, I had a great interview with Brent Brownlee from Supreme Lending. We talk about opportunities with buyers right [00:01:00] now, and, uh, we went a little bit long. So it's, it's a new segment that I'm trying to bring on. I call it lean on a lender and that's a little, a little play on words. I think it's funny. I don't know. Hopefully, you get it Lien on a lender. Um, anyways, uh, so that, that's, that's, what's up with this one. So the interview went a little bit long. Um, so we're still working out how to fit both segments in I'm committed to making this podcast, the episodes shorter than they, than they were in season one. So, um, for that sake, I do have a second part of the, of this episode. It talks about. Um, it talks about the, the buyer presentation, like how to set up a buyer presentation and what to do, what to bring with you, a packet and all that stuff, just kind of, um, you know, start to finish. Cause that's where we left off the last episode. Uh, we did the buyer's flow chart, buyer lead flow chart, converting buyer leads, and then we like kind of left it with. Buyer consultation. So we went into like, what, [00:02:00] what is a buyer consultation? How do you get it? How do you set it up? All that stuff. So, um, we're going to skip that part in this episode. We're going to make it next week's episode. And I hope you all enjoy the, the hope you'll enjoy what, uh, what Brent has to say. We're talking to rehab loans today. Um, and how that might be an opportunity for buyers in, in a lot of the markets, a lot of most markets right now. Um, just because interest rates are high and there's no relief really with values like values are still remaining high. They're still continuing to rise. So, um, finding a home that may need a little work and getting into it with a rehab loan might make sense for some buyers and we, we dig into that. So before we get, get talking to Brent. Um, I just want to re we just want to let everybody know or ask everybody go to the Facebook group. I did. I just changed the name back to the agent mind. So it's, it's, uh, facebook. com slash the agent mind or [00:03:00] facebook. com slash groups, the agent mind. Anyways, it's the group is called the agent mind. If you search for that, you should find it. Go on there. Join that. Um, there's going to be more and more information on there. Certainly announcements as new episodes hit, definitely gonna throw that on there. Um, and hopefully just, we're just getting some, some trinkets. I'd love to get some good conversation going on there. So the more it grows, the better, better it'll be that. And if you are interested in, um, learning more about coaching or partnering with us, reach out to me. Send me an email at TJ McGraw at the agent mind. com. Or if you just have a question, or if you like the show, or you don't like the show, you got some feedback. Shoot me an email, T. J. McGraw. At the agent mind. com and, uh, I'll shut up now. We'll, we'll dig into interview with Brent. So of course I have the, uh, our co host James Dickey with us today. How's it going, James? It's going great, man. Glad, glad to be here again. And just looking forward to this conversation. Awesome. So I've, I've [00:04:00] been thinking about, um, like what to call this segment is we have, uh, Brent Brownley on from supreme lending. Um, we're going to talk, we'll, we'll talk about that and say what we're going to get into, but I was thinking of calling it, um, The segment. I'm calling it leaning on a lender. We think about that leaning on a lender leaning. Don't lean too leaning on a lender. Anyway, I got the graphic in mind already. like, like lean 'cause of home loan is a lean. Get it. Anyway. I like it. That's cheeky. That's my dad, Joe. My dad. My dad puns there for you. So Brent man, welcome to the show, man. I, I appreciate you taking the time out, coming on and talking with us today. Thanks, TJ. Thanks for flying me out here and putting me up and yeah, we're not that kind of show yet. Cool. No, it's fun. Yeah. And uh, so, um, I wanted bread to come on here. Um, because we've been talking about rehab loans and how, where there's an opportunity maybe in this market right now. Um, I do, I want to [00:05:00] kind of give a disclaimer. Um, We're, we're in Georgia. So a lot of stuff we talk about, I don't know if it's Georgia specific, so we're going to speak in generalities so that, um, you know, to kind of have an idea because there's rehab loans everywhere. And if you think this might be something that you could utilize, then definitely speak to the lender in your area, call your favorite lender and ask them about the stuff that Brent talks about today. So Brent man, I guess like what, what is, what's a rehab loan? Well, let me, before I ask you the question. This is it. So with the high interest rates and, and home values, not going down, there's not a crash happening at all. Um, so there, so we're, we're just kind of looking for opportunities to get our buyers into houses. So that's like always, especially if you're really working with a lot of buyers, you may run into the frustration of like, they just get, they just can't afford the payments on the home. So even though they have a good job and they're contributing members to society with good credit, they might just not be [00:06:00] able to afford. The payment on the home because of a, the value of the homes are continuing to rise and interest rates right now are a little bit high. So we have a, or you are going to tell us about this opportunity that may or may not, um, it could be a, a tool for your tool belt, basically as an agent that may be able to help Um, get your buyers into a home. So what, so I'll kick it off to you a minute. Just tell us about what is a rehab loan and how could it help? Yeah, I think it's that, I think it's a tool in the tool belt, um, as much as anything. Um, and so, but, but let me put it in context and, and again, the numbers and the specifics that I may use is maybe Georgia, Metro Atlanta. Specific, but the context of it should be similar all around the country. Um, you know, right now, we still have I had this conversation twice a day with 2 potential buyers, right? Like, there is still very much. It's a short supply, which is why it's very different than it was. 14 years ago, 15 years ago, [00:07:00] right? Um. Very little supply and especially very little supply of affordable housing and affordable can be different depending on where you live. Where we are in metro Atlanta, maybe the south, south metro, um, uh, yeah, I would say affordable. I would put it somewhere between the twos into the four hundreds into the affordable category. It's still very hard to find and very competitive when you do find it. And, um, and that, and the, the problem that we've had over the last gosh year is with interest rates going up and prices still going up in very short supply and a lot of competition. A lot of people in that affordability range are just priced outta the market in terms of their, the monthly payment, that kind of thing. And um, so a lot of people who would otherwise potentially qualify to buy a house just can't simply afford it. Um, so then they're faced with several options, right? Those options are to rent something, [00:08:00] uh, to maybe find a different area to buy a house move. And, uh, or find a house that has a lower value again, which is hard to find where this is where this comes up as a potential tool in the tool belt. Um, you know, maybe there are homes out there that are listed that have been sitting longer than some other homes, because they need a lot of work as a matter of fact. I had this situation. In my neighborhood, like, just recently, just closed last week, you know, and this house was probably a 30 percent under the average. Sale other homes in my neighborhood. It's not a very big neighborhood. Um, and it, it was a hot mess, needed a bunch of work. And actually, I looked at it, uh, the, the, the owner of that. And actually, I'll use this as a good example to use. I looked at this house a year and a half ago, probably when my best friend wanted to buy a house. Um, [00:09:00] and I knew this house was a lot of work. I knew that he knew how to do the work and I knew the guy who lived there needed help to get out of the house. And couldn't afford to do the work. So I was like, renovation loan, perfect scenario for this. That didn't work out fast forward a year and a half. He wants to list the house. He wants a certain amount for it. Uh, I think if it were something like an FHA loan, it definitely wouldn't pass like an FHA appraisal. There would have to be work done. Um, and so this is a really good example for someone who was able to get into the area. We're in 30, you know, the purchase price, 30 percent under what other homes would have been. And then also come alongside, you know, with the and I didn't do the loan on this particular 1, but come on side with the renovation. To get the house back in shape, get what they want out of it and potentially building a little, a little equity. Apart from just the down payment and, um, uh, and so. there. I think that you'll find [00:10:00] homes like that to help people get into, uh, get into something that's a little undervalued right now. Again, it's still gonna be hard to find. Inventory is still an issue. And, um, but it's worth knowing the, uh, the basics of the renovation loan programs. That way, if you do see something out there, it's not an immediate turnoff. Like, Oh man, that thing needs a ton of work. It's like needs a ton of work. Maybe an opportunity. Right. Does that make sense? Absolutely. I, I, it made perfect sense to me because it, it's, um, it's almost, I mean, you hear the term house hacking, um, I'm sure as a, as a real estate agent, we've probably heard the term house hacking quite a bit, um, today, even today. Yeah. It just comes up. So that this is kind of one of those things where if you, you have a client, this is really great for, uh, a younger client or like a first time home buyer or the folks that just aren't in a position where they have a lot of equity at another home that they're selling to be able to get into put a big down payment on another [00:11:00] home and afford the interest rate and all that stuff. Yeah. So yeah. Yeah. Looking some diamonds in the rough and looking for homes that might need just a little bit of, of, uh, TLC, some love. Um, and then, um, getting, getting them into a rehab loan. Now it's, it's not, it sounds easy, right? But it's, you have to be prepared for a little bit more, um, like jumping through hoops for lack of a better description, a little more red tape. So, so speak to that a little bit, like what I'm, I'm, this doesn't, you know, we don't want this to be a tutorial on. Rehab loans. We just want to let people know, or to get people thinking about it, remind people of them, that they're out there and there might be an opportunity. So just like, but just give us the basics. What is it like, what is it and what are the different products out there? Yeah, that's easy breezy. Okay. Good question. That's a good point. Let me start by saying what it's not. [00:12:00] Um, what we're talking about is not a loan for flips. Like not that this is a loan for people who want to buy a house. That's either going to be a primary residence. Um, you know, it does work for 2nd homes, vacation homes. And it also does work for investment properties, meaning rental properties, not flips flips is a whole different. And, uh, but so, but let's just talk specifically about primary residence because that's. The majority of what we're where we're going here, the, uh, you know, it's renovation loans are, you know, it's either like, just like a standard loan. Or it's going to be a conventional, standard Fannie Mae and Freddie Mac loan. Renovation loans are the same, right? And, um, and the basics of it are a renovation loan covers the purchase of the house, plus the renovations that you're going to do to the house. And so let's just say, for example, the purchase is 300, 000 and you're going to do 100, 000 of work. You have a total [00:13:00] project cost of 400, 000. That 400, 000 project cost to a lender. We, we then look at that as, um, as if it were the new purchase price. Okay. So if they're going to put down 5%, it's 5 percent of 400, 000. We're not at the actual purchase price. And so, so who does it, who is it a good fit for it? Um, going back to the idea that it's FHA. Or Fannie Mae and Freddie Mac, you know, regular conventional loans. The same rules apply for the most part. The same rules apply. Um, you know, if, uh, you know, different lenders or different, like, so like if our minimum credit score for an FHA loan is 580, well, we might have an overlay on that, that says minimum credit score for. A renovation renovation loan, it might be 647 and again, check with your lender. That's going to be very different depending on the lenders. My perspective on that is, um, I am kind of a fan of [00:14:00] those overlays to be honest with you. Because they are, uh. Renovation loans do add a layer of complexity to a transaction because you have to the appraisal on any of them, whether it's conventional, the appraisals are done based on the renovations being complete, which means that the appraiser has to get a copy of all the plans and specifications and everything for the renovation from a general contractor. Right? Um, that's a lot of work to do for an appraisal. You know, where typically you just order an appraisal kind of day one, you know, and off to the races and this one, that home buyer's got a lot of work to do in addition to all the other work they have to do. So if you have a very, let's say complicated home buyer, you don't necessarily want to roll in a complicated process as well and make it, why not? Because when that happens, you know, in real estate world, it's not like one plus one equals two, [00:15:00] like complicated plus complicated equals like quadruple complicated. You know what I'm saying? Yes. Unfortunately. Yeah. I think, I think a lot of us know exactly what you're talking about. Oh yeah. Yeah. And so. So, uh, I have been, I've been in a couple of different, um, uh, companies and, and one of the companies that I was at, uh, that was, uh, they had probably the best suite of construction renovation products of anywhere I've seen. They no longer exist. Unfortunately, the company doesn't, they were bought by different companies. They were amazing at it. They were amazing in renovation construction and they, uh, They had a minimum press score of 680, which is pretty high for a minimum for renovation, but that was their philosophy. And what it did is it made their entire process work pretty seamlessly. So anyway, as a, as a realtor, as a lender. What I'm getting at is, like, if you don't over, I would say, don't oversell [00:16:00] renovation loans unless it's some, you know, don't oversell, like, make sure that you have someone who could handle the complexities. Of that process. 'cause it'll be make everyone very stressed if, if, I think the metaphor of a tool and tool belt is, is very apropos in the fact that a tool isn't for everybody. That's a great way to put it, James. You have the right tool for the job about I'm gonna use that. Do . Yeah. You gotta have the right tool for the job. For sure. Yeah. And so it, it does take a little, you know, a little, um, uh, critical thinking if you will. Uh, when you're dealing with, you know, for, for buyers, if you have a buyer, that's just like, they, they work hard, especially something that might be, um, you know, blue collar. I mean, I'm not, I'm not saying that only blue collar people can, can get to loan, but somebody that understands the process of you have to get a general contractor and it's, this is, this goes into like your communication skills have to be pretty good because it is so common, the more [00:17:00] complicated a transaction. The more, the more you can communicate, the more likely you are to keep it together. I think we all can, can kind of relate with that. And the more, um, the more information you can, you can give that person and the more guidance, the better off you are. So I would say, yeah, don't, I don't just pull it out. Like, um, you'll regret it if you just, if you say it to every buyer. and say, Hey, let's, let's just look for something we can rehab and we'll get a rehab loan. Easy peasy. That's not, it should be prefaced with, yeah, it should be prefaced with, you know what? We've been looking for houses for a minute. Like I, I have an idea that might. Work. It might not, but it might work. I'm going to pull our lender in, talk about it, about the, about a rehab loan, a renovation loan and what, what that might look like. But I need to warn you, Mr. Mrs. Buyer, it's, it's more of a process. It's going to take longer to close. You know, you might, you're definitely going to have to do more work. You know, not just getting your, your paperwork into the lender, but [00:18:00] we're going to have to get quotes from contractors. We're going to have to get all sorts of other stuff. There's another layer of stuff that you have to provide and get and, and all the T's you have to cross and all the I's you have to dot. It's a layer of prequalification that we have to make sure that we prequalify, you know, our clients before we get into staff. Yeah. Yeah. That's a there's another step to it. If I, if I was a realtor. looking at potentially doing renovation loans. Um, I would, I would vet a few contractors as well because that's a, that's an important part of it. Um, you're gonna want to find a couple of contractors that can, um, you know, that that had the capacity to handle anything from a, you know, 15 to 20, 000 kind of a small cosmetic update type situation on some things up to maybe a couple 100, 000. You're finishing a basement, adding a, you can ask where footage Um, you know, I would bet a couple of contractors and the contractors, [00:19:00] you don't want somebody who's used to just working off their tailgate. Um, cause they're going to have to provide the lender with a lot of information. Um, yeah, I was about as that's all I was chuckling is like, see, so the, uh, when you're getting a quote, like the text of the total sum of all the work is not, it's not going to work. So I've had contractors like, Hey, first of all, if I can get them to answer me back. Like, okay, and then they do, it's just a text of like, yeah, that's going to cost 10, 000. Can you, can you kind of break it down and like, can you itemize that for me? Yeah. So a lot of contractors are familiar with these processes because it becomes important to them because how they get paid is interesting. Right. So they might get a little advanced at closing, but then they've got to have the ability to carry some of those things until there can be a series of draws. After the closing from an escrow account. And so, so having the contractor be really aware of how these work is important. And there, there's a [00:20:00] lot that I've never dealt with this before. And then there's, there's some that are familiar with it and those are the ones you really want to use for this kind of thing. Um, yeah. Gotcha. Well, I had a question. Um, what kind of timeframes or time limits are there on a renovation loan? So is this going under writing and all that stuff? Is it can be, has to be done within six months or a year? Is it a specified amount of time? Typical is if it's a, it's a, if it's a pretty, if it's a pretty large scope of a project, they really do want it done in about, in about six months. Most of them don't take that long. They're usually finished in the kitchen, you know, redoing some flooring that type of that type of situation. Um, but yeah, six months is pretty typical. Um, as far as if, if you're, you know, if you're a realtor and you're looking at going into something like this with the potential client, um, you know, I would say a 45 solid with 45 day contract is what you're going to want to look at. [00:21:00] Um, you know, so if we, if we get back into a situation where rates drop and then there's a bunch of competition, a bunch of buyers, it's real hard to do renovation loans in that because it's not in that environment. Sellers want to move fast. They don't want to wait 45, they don't have to, you know, um, yeah, but this isn't going to work. It's still, it's still not going to work in some markets. But there are some markets have slowed down yet and, and, um, because of interest rates mainly. And, um, but the interest rates are, are, uh, home values are still pretty high. So it's kind of, you know, as we said before, it, it, it may be, it's a tool for your tool belt. We keep saying that, keep reiterating that. It's just another option. Um, for, especially for, if you're, if you love to solve problems, the most agents do. That's, you know, kind of, we get a little, uh, a little jolt. It's a little dopamine rush when we get to solve the problem for sure. So it's like that. This is just another, another thing that, uh, that we can add in there for sure. Can I, can I throw out just a few short highlights to help people sort of spot the [00:22:00] zebra, if you will. Um, um, so, you know, keep in mind again, check with, you know, what area you may be in of the country, but. Generally speaking, you know, conventional loans have gone up to around the seven 50 ranges in terms of the, uh, the, the maximum loan amount for conventional loans and, um, and then the five hundreds for FHA loans, you know, totally depends county and area of the country and that kind of thing, but those are pretty high loan amounts, right? So there, that still leaves a fair amount of wiggle room to make these things work. Even on, even on bigger deals, you know, and. Um, and maybe not just first time home buyers, like maybe a third, fourth, fifth time home buyer who just really is picky about their kitchen. Well, that makes it, that brings up a question for me, which is a good question. So I'm glad that you reminded me to ask this. Like what are we talking about? Like if somebody finds a house and it turns out like it's a full gut and it might take longer than six months, is this, is this still an option? [00:23:00] Still an option for that kind of house. Run it by the lender. Um, still an option if it's a full gut. Um, you can. There's even again, without getting too deep into the details, like you can even get away with tearing, tearing a house down to the foundation foundation has to remain intact, but it can go down to the foundation and pretty much rebuild the entire thing. And it's still considered a renovation because the foundation was still remaining intact. Yeah. So pretty robust. Like, you can do a lot with it. Um, and, uh, you know, as far as like, like, we talked about credit score a little bit, um. Down payments are the same as FHA and conventional 3. 5 percent on FHA as little as 3 percent on conventional. Um, and, uh, and then, uh, yeah, you can even finance where it's a little different than other purchases. You know, you can't directly finance closing costs on, you know, the seller can always pay, [00:24:00] right? So sort of indirectly paying for there, but, but with renovation loans, there's a portion of the renovation costs that. Are financed into the loan, and you can, even if it's. Pretty large scope like you're gonna completely gut the whole thing. You can even finance a few of the initial mortgage payments So that way it's going to take six months and they got to go rent something. And you're kind of having to deal with that then in there. Like we can't afford to get away with paying the two rent or mortgage payments for four months. Cool. That's awesome. That's good to know. That's it. I did not know that about that, about rehab loans. So it's, it's a good option on there. So, so this is for, if you have a buyer that is okay with, uh, extra, a little extra work. And seeing a diamond in a rough, a lot of buyers, I mean, they can't even get past the color of the paint on the wall. So this is not for that type of buyer or, or like if the, if the carpet needs to be changed, like, you know, the buyer looks like, Oh my God, I can't move in that place. The carpet's filthy. Like, well, you know, you can change the [00:25:00] carpet. That's pretty. Fairly simple thing to do. So it's not for that kind of buyer, but it's for a buyer who can see like, Oh yeah, I could, I could see with enough money, I could make this place really gorgeous, really make this place a perfect home, that type of person. And then the property you're looking for is one that's been sitting on the market for a little while, while that. But people keep passing over and passing over like that's, that's the one you're going to look, look for if it's been on the market for three days, you, you, you may, you'll have a harder time, harder, um, time convincing that seller to get into a 45 day contract or a 50 day contract. And, and, and there's the aspect of, you have to explain what the process is to the seller and a lot of listing agents aren't some, not some listing agents aren't. Aren't, um, that motivated to, to, to work a little more in, in educating themselves as well. So not talking bad about anybody, but we all [00:26:00] know we've all worked with agents that just seem to. Um, and they're not, they're not gonna work, but you know, that's, that's, that, that, that's those, those agents, uh, they're living their life and they're, they're hiking their own hike. So we'll just let them roll with it, but cool. So this is, this has been awesome. Um, and this isn't a tutorial. We could go deep into this and really talk about like what, what it's all about, but this is more of a, just a, of a, Hey, you know, there, if you have a buyer, you can't get them into anything because they just can't afford the prices right now. This might be an option. This might be something. But, you need to have a lender that's, that understands the process and is willing to do it. And like you said, uh, a contractor, finding a contractor that has some experience with, with the rehab loans, or at least someone that is, that is, you know, buttoned up that can provide you with the itemized, uh, estimates and, and all this and kind of play the game and roll with it. So really those two things are the most important, I would think. [00:27:00] And then, uh, and then you, you know, give it a shot. It may not work. You just gotta, you know, set expectations. And, um, realistic expectation with their buyers. And just, but I'd rather throw that out than, than kind of like give up on helping a buyer. You know what I mean? Yeah. Yeah, absolutely. Yeah. Something like that. So this has been awesome. So Brent, uh, I'm going to put your contact information in the show notes. So if he, I didn't even ask you beforehand, but are you, you want to get some emails from people with questions perhaps? Yeah. Email me all day long and you can put my cell phone number in there to be able to text me, call me, email me anything. Okay, cool. Yeah. So there'll be some form of, uh, of contact information for Brent in there. He's at with Supreme Lending where, uh, of course I've mentioned this before in the show, but we're in the Atlanta, Georgia area. So just to, just to reiterate, in case you didn't hear the first time, this very general information right here, just to give you kind of an idea of, of [00:28:00] another tool for the tool belt. But check, talk to your local lender in and make sure that you're following all the rules and guidelines and compliance with your, with your own state and municipalities or whatever the governing body in your area is, but check with your lender, check with, you know, make sure that you're doing everything on the up and up. And uh, if you have questions like legal questions or anything like that, definitely contact your broker. I'm sure your broker has. Either dealt with this or understands it in your area. Um, so to do that, so that's my disclaimer. I had to throw that out there because we are not, uh, we're not licensed in every state in the union. So just want to make sure that we're, um, we're getting that out there. So Brent, thanks so much for coming on. I'm going to have you back for, uh, the lean on a lender section. The lean on a lender section. Thank you. I'm going to make it stick. We might have coaches corner too. We'll bring a coach on. Please do all that stuff. So cool. All right, man. Thanks so much. [00:29:00] Thank you. Thanks for that.