How Roofs Affect A Sale
Don’t Let a Roof Kill Your Home Purchase or Sale
Florida homeowners’ insurance costs are going through the roof, so to speak… Insurance carriers are choosing not to insure or are charging high rates on homes whose roofs, though intact, are more than 20 years old. Sellers don’t want to replace a roof that is sound and doesn’t leak and buyers don’t want to pay exorbitant costs of the insurance, if they can even get it. So, home sales are falling apart. Another option is to finance the cost of a new roof in the mortgage. Let’s say a home is listed at $800,000. Needs a new roof: $45,000. The seller can agree to a price reduction of $45,000 to cover the cost of a new roof and we can close using a restoration, rehabilitation mortgage. These loans allow for closing IN ADVANCE of the roof repair. So, the buyers can move in and the seller can cash out and move out like any other closing prior to completion of the new roof.
If the seller doesn’t want to reduce their price, the buyer has the option to proceed by adding the cost of the roof to the loan amount. This does not affect the loan to value as long as the total loan to value doesn’t exceed 95% of completed future value of the home. So in other words, the appraisal takes into consideration the value of the home after the roof is installed. Insurance is then easier to obtain since the insurance carrier will either allow a Builders Risk policy which can be converted to a standard policy once the roof is completed or issue a policy in advance of the roof completion requiring inspection. The new policy premium is then rated considering the new roof allowing for new roof discounts. So, everybody wins.
It should be noted that a borrower putting 20% down will not have to pay mortgage insurance even when the cost of the new roof brings the combined loan to value to the max 95%. There are a few extra steps with these types of mortgages as they are similar in nature to construction loan financing, so we will need to have your roofer and construction contract approved during processing of the loan. This is similar to condo financing where we need to get the condominium complex approved. Instead, we need to have the contractor approved. It would be wise to have a roofer ready and approved prior to contract so a buyer knows the cost of the roof replacement going in. It will also speed up the process of getting a roofer approved by a lender during the mortgage processing phase. If you want to know more about this or other deal saving mortgage financing ideas, go to my blog posts and be amazed. Then give me a call.