Categories Home Improvement

How to Finance a New Home or Your Home Renovation or Both

An Interview with Guy Aboutboul of Guaranteed Rate

Over the last year plus, the housing market’s conditions of higher interest rates and low inventory have resulted in a conundrum for buyers. With limited inventory, a Buyer might need to consider homes that require work to suit their needs, but current rates might not allow for the cash to do the renovations.

The mortgage industry has been hard-pressed to find solutions.

So we decided to catch up with an expert, Guy Aboutboul of Guaranteed Rate, to hear about some financing solutions to current market challenges. The great thing about Guy, other than his affable manner and extensive knowledge, is that he is licensed and active in two territories that have relevance to our readers here at Inhabit Your Home; NJ, of course, and NYC, where so many of our community members continue to originate from.

When a Home Needs Work

IYH: When a Buyer comes to you and tells you that all the homes they have seen in their area of choice need work, and that they are unsure how to finance a purchase considering the renovations they will have to do, what do you suggest?

GA: We see it every day. Good homes are in short supply. The easiest and most overlooked solution is simply to put less money down. A common mortgage myth is “A 20% down payment is required”. When in fact, we have programs that allow as little as 3% down that allow them to save the difference for their renovation. But of course, that depends on the market they are in, so if that’s not enough cash, we have close to a dozen different renovation or construction loan options that we can use. The most common are our HOMESTYLE and FHA 203(K). They allow us to finance most or all of the renovation costs.

IYH: Is the process for applying or qualifying for these products different from a standard loan?

GA: The process is similar, but there are key differences. Since we are financing a larger loan than usual, the buyers would need to qualify for that. With a renovation loan, we also factor in the After Repair Value (ARV). We’ll get a scope of work from the buyer’s contractor and have an appraisal report completed to determine the current as-is value (with the reno) and the ARV (the estimated value once the work is complete).

Deciding to Love It

IYH: What about someone who already owns a home and is considering a renovation? What product/s do you suggest in that case?

A kitchen sink with a beautiful pattern tiled backsplash with a chrome faucet, black granite countertops, and surrounded by blue and wood cabinets.

GA: The typical answer is a cash-out refinance, which allows homeowners to tap into the equity they have built and access cash. However, it requires us to take a brand-new loan and pay off their existing mortgage. With Interest rates in the 6%-7% range, most of us don’t want to give up our current rate. Especially if we bought in 2020/2021. We actually have the perfect solution to this – a Home Equity Line of Credit or HELOC. This type of loan allows us to keep our existing mortgage and take a 2nd mortgage on top. You can easily apply online completely free with no hard credit inquiry to see how you’re approved for. The interest rates are fixed and you decide how much you want to borrow. The best part about it is, you only pay interest on the amount you have outstanding – think of it like a line of credit with a fixed rate, as opposed to a traditional mortgage.

The Cost of Homeownership

IYH: Can you speak briefly about other products that address the challenges buyers face in today’s market?

GA: The biggest issue is the rising cost of homeownership. With interest rates and property values at a high point – many buyers are priced out. However, there are many affordable first-time home buyer programs where we will significantly reduce the interest rate for certain buyers that qualify. Our FirstHome+ program allows you to put as little as 3% down, and we’ll discount your rate too! As long as you are a first-time home buyer and your income is less than 120% of the Area’s Median Income which in Maplewood, for example, is $135,120/year.

IYH: Any final thoughts?

A luxurious kitchen with blue cabinets, a stainless steel stove, granite backsplash and countertop, and black framed windows.

GA: Yes, buying or renovating a home can be tough, but with the right guidance it can be fun and exciting. I’m always happy to have a conversation to offer my advice or discuss the many products we offer! 

Thank you, Guy! We are super grateful for this info. The world of home financing is certainly a world unto itself. The info you shared highlights the industry’s creativity and companies at the forefront, like Guaranteed Rate. Necessity IS the mother of invention, after all.

Guy is available to help you with your home reno financing needs, and your Brooklyn/NYC friends who were considering a move out to NJ before the inventory disappeared too! You can contact him here.

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