Financing A Home In Need Of Renovation Or Updating
March 3, 2021 | amandasearlerealtor
Finding the perfect home isn’t always easy. Sometimes, the home you prefer has the character, layout, or amenities but needs renovating and/or updating.
You might have the perfect home in mind, but you know it has to be renovated before you can settle in with your family. If this sounds like your situation, it’s important to find the right financing. Here are a few common financing options for homes needing renovations.
FHA 203(k) Mortgage
The Federal Housing Administration’s 203(k) mortgage provides an option for buyers without much of a down payment and for those with a lower than average credit score. These buyers can obtain the funding needed to purchase and renovate the home of their choice. Three types of these mortgages are available:
- Regular 203(k) Loan – Provides funding for nearly any repair or improvement including reconstruction or demolition. This home loan allows the borrower to take up to 110% of the appraiser’s estimate of the home value after renovations.
- Streamlined 203(k) Mortgage – If your project doesn’t require any type of engineer, architect or plans, this type of loan may work for you. It helps with many types of repairs, such as roofs, decks, flooring and more. Borrowers may take up to $35,000 above the purchase price for repairs and improvements.
- The PowerSaver Pilot 203(k) Mortgage – If you are adding energy-saving upgrades to the home, this loan program is for you. You can take up to $35,000 above the purchase price for repairs, but at least $3,500 must be used towards energy upgrades.
Fannie Mae HomeStyle Renovation Mortgage
With the Fannie Mae renovation mortgage, you only have to put 5% down for a single-family home. You will have a full year to complete the renovations and the program doesn’t have a minimum amount you must use for repairs.
This type of mortgage allows you to borrow based on an appraiser’s estimate of the home value after improvements or the purchase price plus the cost of renovations.
A Non-Conventional Renovation Mortgage
Another type of loan you can use for renovating a home you plan to purchase is a non-conventional renovation mortgage. This type of loan comes from a bank or lender with the ability to provide faster and easier approval. The requirements for non-conventional mortgage loans are not as strict compared to a traditional bank mortgage.
Often, you can borrow above the purchase price and many non-conventional lenders will base the loan amount on an appraiser’s estimate of the home value after improvements are made. They will require the improvements be completed in a specific amount of time, but you will be able to get the cost of renovations built into the total loan amount for your new home.
The bottom line is that there are many options, reach out to your lender to discuss your situation and what renovation loan would be best for you.
