Is your dream home a fixer-upper? Buying a home that needs renovation can offer real advantages. It’s an excellent way to secure a home that’s larger or located in a more desirable location for less. It’s also a unique opportunity to put your personal stamp on the place that you’ll call home. However, buying a fixer-upper does present a challenge that you wouldn’t need to worry about if you opted for a move-in ready property: finding the funding for your renovations. How can you make it work? Understanding your home renovation loan options can help you figure out the best path forward.
Home Renovation Loan Options
Like fixer-uppers, home renovation loan options come in all shapes in sizes. Some are designed for repairs to your primary residence. Others can be used to renovate either homes or investment properties. Meanwhile, some are capped by loan limits, some stretch into jumbo territory, and others offer unique flexibility with escrow programs. Exploring the possibilities allows you to determine which course could help you attain your specific housing goals.
PrimeLending’s Buyer/Seller Funded Repair Escrow Program
What if you’ve found not only a fixer-upper that you love but also a seller who’s willing to pay for the repairs or renovations that the home needs in order to close the deal? Renovations take time. When a motivated seller doesn’t want to wait around until the work is done, PrimeLending’s Buyer/Seller Funded Repair Escrow Program offers a clever solution. Under this program, the seller funds an escrow account to pay for the negotiated improvements. In the right circumstances, this program can work neatly with conventional, FHA, USDA, and VA loans. The renovation team will review the list of proposed repairs to determine if they’re eligible. All repairs must attach to the property and add to its value. Once the plan is accepted, an escrow account must be funded with the amount required for the work plus a 10 percent contingency fund. Then, repairs must be completed within 30 days.
Jumbo Renovation Financing
When the cost of a property exceeds the limits set for a conforming loan, you’ll need a jumbo loan. PrimeLending offers a 30-year fixed-rate jumbo renovation loan. Borrowers can secure a maximum of the lesser of $250,000 or 30 percent of the property’s “as completed” value. Acceptable renovations will be permanently attached to the property and add to its value. They cannot require the addition of square footage.
Fannie Mae HomeStyle Renovation Loan
The Fannie Mae HomeStyle Renovation loan makes it easy to secure the funds that you need to purchase and renovate a property with a single loan. Available for the purchase or refinancing of residences or investment properties, these renovation loans make it easy to get your project green-lighted with an approval process that welcomes streamlined documentation.
How much money can you get for renovations? For purchases, borrowers can get the lesser of either 75 percent of the appraised “as completed” value or 75 percent of the sum of the purchase price and renovation costs. For refinances, borrowers can get 75 percent of the appraised “as completed” value.
What can you do with the renovation monies? Acceptable renovations and improvements include permanent fixes that add value to the property.
203(k) Renovation Mortgage
A Federal Housing Administration (FHA) loan, the 203(k) Renovation Mortgage is another loan that lets borrowers get monies for both a property’s purchase and renovation in one loan. This loan comes with an occupancy requirement, so it’s not for investment properties. However, it does allow borrowers the freedom to make major structural changes, which is something that not all renovation loans do. You’ll need at least a 3.5-percent down payment, but you’ll be able to borrow up to 110 percent of the home’s appraised “as completed” value. After closing, funds not used for the properties purchase will be placed in escrow and doled out by the lender to the approved contractor as established milestones are met.
At PrimeLending of Denver, Colorado, we delight in helping you achieve your housing goals. We believe that becoming a homeowner should be a fun adventure, so we work hard to minimize the stress and worry and to arm you with the information and services you need to move forward confidently. Contact us today to get started.