There are many reasons why people decide that a fixer-upper is their perfect home purchase. They may like the idea of taking a hands-on approach to shaping a house to suit their own preferences. The opportunity to buy a house that would otherwise be out of their reach may be appealing. They may appreciate the chance to quickly boost their home equity by increasing their home’s value with improvements. Or, they may have always dreamed of owning a fixer-upper. While many paths can bring homebuyers to the point where they’re ready to buy a house that’s in need of renovation, they all face a common dilemma: finding the money to fund the renovations. While traditional mortgages only provide enough funds to buy a house, renovation loans offer a chance to get the money you need to buy the home and fix it up. If you’ve got your eye on a fixer-upper, learning how to get a renovation loan could be the ticket to reaching your housing goals.
How to Get a Renovation Loan
With a renovation loan, you have a chance to secure one loan that provides both the funds to pay for your home purchase or loan and the cost of the needed renovations. As Credible explains, there are various loan programs, so the exact details depend on which loan you opt for. As with any home loan, your best strategy would be to make sure that your credit and finances are in good shape, choose a reputable lender to work with, and start asking questions. When you decide which loan is right for your situation, you can put in an application with your lender. What types of renovation loans are available?
The FHA 203(k) Mortgage
The FHA 203(k) mortgage is a government-backed loan option that’s ideal for borrowers with less-than-perfect credit. As the U.S. Department of Housing and Urban Development indicates, part of this single-close loan is used to pay off the home purchase or loan. The remaining amount is placed in escrow and used to pay for your renovations as they’re finished. You can opt for either a fixed-rate or adjustable-rate loan. What about the renovations? The house must be at least a year old, and the renovations must have a price tag of $5,000 or more, but there’s a lot of flexibility with regard to the type of renovations that you can accomplish. Anything from small-scale projects to major reconstructions is acceptable. What if your renovation needs are minimal? If your project is expected to cost less than $5,000, then you cannot use the standard 203(k) mortgage. However, the limited 203(k) mortgage might work for your situation.
VA Renovation Loan
Articles touting home loans often mention the fact that VA loans offer eligible borrowers a chance to snag a home loan with no down payment requirement, low interest rates, great loan terms, no prepayment penalties, and limited closing costs. As NerdWallet points out, the VA’s loan program also extends to renovation loans, so if you’re eligible for a VA loan, this could be an avenue worth exploring.
Fannie Mae HomeStyle Loan
The Fannie Mae HomeStyle is a single-close renovation loan that offers you the chance to snag either a fixed-rate or adjustable-rate loan. As Fannie Mae reports, it can be used to fund the purchase of the property and structural and cosmetic renovations. You can borrow up to 75 percent of the lesser of either the total of the home’s sales price and its estimated renovation costs or its “as completed” appraised value. Basing the numbers on the improved value allows you to borrow more and gives you a chance to build equity quickly.
EZ “C”onventional Loan
If you prefer to use a conventional loan for your home purchase, consider the EZ “C”onventional loan. As ValuePenguin explains, this type of home loan can be used to get the funds needed for specific types of renovations. Only nonstructural repairs that add value to the property are acceptable. Additions, complete reconstructions, or repairs that aren’t recognized as bringing any additional value to the property won’t be approved.
Do you have questions about how to get a renovation loan? Are you wondering which renovation loan best fits your situation? Talk to the loan experts at PrimeLending Denver. We’re ready to help. Contact us today to get started.