An Option for Low Home Inventory

Home Inventory has been a problem since Covid and for the most part, it’s been nationwide. Yes, low interest rates benefitted buyers but as I wrote in a previous column, the fear of Covid by some led to a lack of homes for sale. As time went on, the competition among buyers intensified and although sellers were in such a strong position to make more money on a sale, they were afraid of then becoming buyers themselves. This led to a continued period of the “home inventory shortage”.

Here in West Virginia, particularly in the rural areas, there also isn’t enough new construction. Sure, the Mountain State does have some in places such as Morgantown, Bridgeport, Teays Valley outside of Charleston & Huntington and a couple of other locales, but in general, our state doesn’t have many home builders working on developments. Soon, more homes will be needed even in those rural areas given all the new manufacturing the governor and his team are bringing to the state. Even here in Morgantown, we need more.

Having said that, there is another option. Renovation Loans will fund not only the purchase price of a home, but also improvement projects. Not all lenders offer these, so you’ll need to talk to your REALTOR® for recommendations. These types of loans not only enable buyers to purchase, but they improve communities by upgrading older homes which need attention. If you drive around portions of our city, you know, we have many older homes which have seen better days.

Probably the most well-known renovation loan is the “FHA 203K”, but there are numerous loans backed by the Federal Housing Administration (FHA), the Veterans Administration (VA), the US Department of Agriculture (USDA) and possibly a few other entities. Here’s a brief overview:
A buyer prequalifies through one of these loan programs. After the buyer and the REALTOR® get a property under contract, a licensed and insured contractor comes in to provide estimates on projects. Let’s say the purchase price is $250,000, but if the buyer qualifies for an additional $50,000, they can use this amount with the contractor. After the estimates are submitted, the transaction proceeds. One difference is when it’s time for the appraisal, the appraised value incorporates the pending improvements. After the deal is closed, the lender will in most cases, provide a “Draw” (funds for the contractor to purchase materials) and then work begins. The lender will give the contractor a specific amount of time in which to complete the work. It could be 60 – 90 days or more if it’s a large renovation. Once all the work is completed, the lender will send someone to inspect, to ensure it’s been completed to satisfaction. The contractor is then paid the balance owed.

One drawback in our area is not having enough licensed contractors. This is a piece that neither the lender nor REALTOR® can control but if you secure one, it’s a fantastic way to purchase a property and to help to revitalize a neighborhood.

Brian McCommon, 2024 MBOR President