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Chrisman's Corner: Beware of Remodeling While Refinancing

Rates have not changed much in recent weeks, and JMAC’s brokers are still helping borrowers that need to refinance. Borrowers have to contend with the usual underwriting process for credit, have an appraisal done, and qualify for the mortgage. But one somewhat surprising issue that some of our brokers are encountering, that often halts a refinance, is a remodel!

Some JMAC brokers are having borrowers, who are almost through the process, tell them that not only has there been some remodeling done, but it is still going. Remodeling done without a permit is a problem (it changes the value of the home, but is often illegal), and remodeling in process can take months while waiting for the required building permit.

JMAC’s brokers know that these events will often hold up the refinance. On the face of it, a lender should not be concerned about improvements in the property that increase its value, since that makes the loan a safer investment. But in fact lenders like JMAC are concerned that in the process of making an “improvement”, the owner may have violated local building codes, which could make the property unsalable in the future. This danger is greatest when the owner does the work himself and doesn’t want to be bothered with (or doesn’t know about) the local building codes.

When our brokers ask the borrower about improvements, it is because he or she is following the instructions of the JMAC underwriter, who wants to make sure that work on the house has been done legally and is in compliance with building codes. The underwriter will want this verified by the local government entity that enforces the codes.

Any borrower refinancing while having improvements in process may be asked by the broker to come back after they have been completed and document that they are in compliance with the codes. Generally speaking, borrowers should not refinance and remodel at the same time.