What’s a Renovation Loan?
Home Renovation and Improvement Loans
Buying a fixer-upper with a home renovation loan
What’s a renovation loan?
When you’re shopping for a new home, you may have a wish list of features you’d like in your ideal house. More than likely, not every home you tour will check off every item on your list. If you’re looking to purchase a house that might need improvements, then a home renovation loan can help you customize a home the way you want it — all without using your cash reserves or incurring debt on your credit cards.
You can also use a renovation loan to buy a home that is below market value because of its condition. You can close on a home you can afford, customize it to make it your own and possibly end up with instant equity!
What are the benefits of a home renovation loan?
Here are some of the benefits of getting a home remodeling loan:
There is no need to spend additional out-of-pocket cash on up-front renovations.
Expand your home search to include competitively priced older homes and fixer-uppers.
Purchase a home and borrow the funds you need for renovation projects in one 30-year fixed-rate mortgage — everything from basic repairs to room additions and more .
Some advantages of a home renovation or improvement loan are:
You could qualify for a down payment as low as 3% or 3.5% if you’re applying for a Fannie Mae Home Style or FHA 203(k) loan.
You may qualify for 0% down if you’re a veteran.
You’ll have peace of mind knowing the home renovations are done the way you want by the contractor of your choice.
There is no need to worry about post-closing costs like inspections, permit fees, architectural or engineering drawings, and the supplemental origination fee. These fees can be financed into your renovation escrow account.
You’ll have the security of a contingency reserve. We know that once you start your project, you may uncover additional health or safety repairs that need to be done. In such cases, an additional 10% to 20% of your bid cost is included as a contingency reserve to serve as a safety net.
You can finance up to six months of mortgage payments into the home loan. For larger projects where it’s not possible or preferable to live in the home during renovations, you can avoid paying your mortgage and your rent at a temporary residence at the same time.
Home Renovation Loan Options:
FHA 203(k) loan
Limited: Perfect for smaller projects and a total cost under $35,000 without structural home renovations.
Standard: Ideal if the total project cost is over $5,000 or structural repairs are in your renovation plans.
Low down payment of 3.5% of the total
Fannie Mae Home Style and Freddie Mac CHOICE Renovation loans
Down payments start as low as 3% of the total acquisition cost – perfect for home improvement projects big and small.
Both programs offer the option to purchase and renovate a single-family investment property or vacation home.
VA Renovation loan
Eligible veterans can qualify for 100% financing to purchase and renovate a home.
The loan is tailored for smaller renovation projects with a total cost under $35,000 without structural repairs.
*The above references an opinion and is for informational purposes only. It is not intended to be financial, legal, or tax advice. Consult the appropriate professionals for advice regarding your individual needs.
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