Owner-Occupied Re-Financing Question

1 Reply

Let me preface this by saying I've never refinanced an owner-occupied single family home.

I was considering putting an offer in on a condo being at around $200K. I was looking to use a 3% down loan to get into the property and fix it up. These were what the numbers looked like:

Purchase $200K

Rehab $14K (cosmetic)

ARV $270K

In discussions with my lender about how to get rid of the PMI as quickly as possible, I asked him about refinancing after I had restored the property to neighborhood standards and its value had risen to the level of the comps in the neighborhood. He said that it was not likely that the appraiser would consider the renovations to have much value, as they were only cosmetic, even though the sales comps in the neighborhood on similar units (same bed/bath, sq ft) supported the $270K ARV.

That surprised me as I thought the appraiser would just be using the sales comps in the neighborhood to determine the fair market value, not my acquisition costs and the cost of my renovations. Has anyone run across this situation?

@Hunter L.

In this scenario, you are both correct.  You can certainly push value by updating (cosmetic) finishes but only to a point.  Example, if you upgrade the kitchen counter from laminate to granite or if you update the flooring from carpet to hardwoods.  However, the appraiser will not account for updating paint or if you are simply replacing an old carpet with a new carpet.  

If the floorplan allows you can certainly make changes that either add square footage or re-designate space (Example, convert a den to a bedroom).  I recommend contacting a local appraiser and see what he thinks.  If you actually purchase the property, you can even try to meet with that appraiser on-site and pick his brain about what could increase the property's value.