The person: The Santa Fe Area Home Builders Association, of which Kim Shanahan is the executive officer, has a motto: “building a better Santa Fe together.” The operative word is “building,” which is exactly what’s not happening. Both in Santa Fe and nationwide, the population is growing four times faster than the rate of new home construction, which has left many out of work.
The plan: Use federal loan programs to buy up and renovate existing homes.
How it works: According to Shanahan, buying and revamping existing properties will not only create jobs, but will also give Santa Fe a much-needed face-lift and increase the value of the surrounding areas.
“Foreclosed and bank-owned properties continue to have a devastating effect on the construction industry because they are being sold for less than half of the value they had a few years ago and are way below what it costs to replace them or to build a similar brand-new home,” Shanahan says. These properties are littering the landscape and stinking up the economy. Think of it as recycling real estate: We just need renovate and reuse the homes we already have. According to Shanahan, until these distressed properties are bought and occupied, new home construction will not recover. If Shanahan’s plan were a 12-step program, “homebuyers anonymous,” this is the first step on the road to recovery.
“The good news is that there is a great [Federal Housing Administration] mortgage product available to help solve the crisis,” Shanahan explains. The product is the US Department of Housing and Urban Development’s Section 203(k) loan program, which allows buyers with credit scores in the low 600s to put as little as 3.5 percent down on a distressed property. The program also provides money on top of the sale price for needed improvements. By incorporating renovation costs into the mortgage, this method expedites the usual process of closing on a purchase loan, taking out a construction loan and then refinancing on the new amount. The program offers anywhere from $5,000-$35,000 for home improvements and incorporates the cost into a single mortgage. As an added benefit, local contractors and construction workers can find employment by doing renovations.
Bottom line: Buying and renovating existing properties employs construction workers, assimilates distressed homes and increases the value of the surrounding area; HUD’s 203(k) loan program makes this scenario possible. “This program is virtually unused in New Mexico...and is just now starting to be investigated by realtors, builders and lenders,” Shanahan says. “Our city and county officials should use the bully pulpit of their offices to get the word out to potential homebuyers that relief is available.” Potential homebuyers, the 203(k) program may be the answer to your, and New Mexico’s, economic crisis.