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Renovation Programs
Are you looking to buy a home but can’t find a move-in-ready home in your desired neighborhood? Have you found the right home in the right location that is missing some of the details you require? Would you like to improve your current home but don’t know how you’ll pay for the improvements? A renovation or rehabilitation loan may be the product you are looking for! A renovation home loan allows you to buy or refinance a property that might need certain updates or improvements and includes the cost of renovations in the loan financing. The beauty of this loan type is that you fill out one application, go through one approval process, one loan closing, and most importantly, make one mortgage payment.
What kind of repairs can be done with this type of loan? Renovations that are required to make the house habitable and financeable, or even renovations that would be considered optional, such as kitchen and bathroom remodeling, additions, basement upgrades, pools, and even landscaping, can be included in some cases.
You can buy a home or refinance your current home, plus make wanted or needed improvements just after closing. Achieve two goals with one loan.
Benefits of Renovation loans include:
- Purchase or refinance a home in almost any condition, plus make wanted or needed renovations with one application, one loan approval, and one monthly mortgage payment.
- Repay your renovation costs over the course of the loan.
- Improvements to your home may increase the value.
FHA 203(k) Rehabilitation Mortgage Insurance Program
The FHA Limited 203(k) and FHA 203 (k) Standard Rehabilitation Mortgages are easy-to-use mortgage programs specifically designed for those who wish to make improvements to an owner-occupied home they own or would like to buy. Rather than walking away from a home they love because they don’t have the cash for home improvements, FHA Limited 203(k) and FHA Standard 203 (k) Rehabilitation Mortgages allow homebuyers to finance the renovation costs within the first mortgage.
What is the difference between the Limited and Standard 203(k)?
These loans are basically the same, except that the Limited 203(k) is capped at $75,000 in repairs, allows for up to three separate contractors, and does not have a HUD consultant’s involvement. The Standard 203(k) has a minimum of $5000. A HUD Consultant is required to inspect the property with the mortgagee and review any wants, needs, or required items and items they would like to have. Standard 203(k)’s no-limit cap could require the client to bring additional funds to the closing if the value doesn’t cover the costs.
Another difference between the two programs is that the Limited requires the home to be habitable throughout the renovation period, whereas the standard does not. Borrowers using the standard 203 (k) may add up to six months of mortgage payments to their construction loan for the period during which the home is uninhabitable.
Finally, with the Limited 203(k), payments to a contractor can be handled in two phases. The first payment is at the start of the project, and the second is upon completion. With Standard 203(k), an assigned HUD consultant monitors construction, making payments on the percent of completion of any line items inspected.
Fannie Mae HomeStyle Conventional Renovation Mortgage
The Fannie Mae HomeStyle Conventional Renovation Mortgage is a single-close loan that enables borrowers to purchase a home that needs repairs or refinance their existing home and include the necessary funds for renovation in the loan balance. The loan amount is based on the acquisition costs (offer amount plus the total renovation costs) on a purchase or the home’s “as-completed” value. The loan can be used even if there are no required improvements or minimum dollar amount for the repairs. Repairs or improvements, however, must be permanently affixed to the real property and add value to the property.
The Fannie Mae HomeStyle Renovation loan is a popular alternative to the FHA 203(k) limited and standard 20(k). Here are some of the benefits of Fannie Mae’s HomeStyle Renovation Loan:
- Down payments can be as low as 3% of the sales price of the home if you plan to live in the home and you are a first-time homebuyer getting a fixed-rate loan.
- For buyers who have previously owned a home, you may qualify for 3% of the sale price of the home if you are combining the homestyle with the HomeReady loan*.
- The appraiser will assess the home based on its future value after the completion of renovation.
- Homeowners can add up to six mortgage payments to the loan balance until the home can be moved into if the home is not habitable.
- *HomeReady is Fannie Mae’s most lenient mortgage program with special eligibility rules for lower-income and/or first-time homebuyers.
Fix and Flip
Fix and Flip loans are flexible, uniquely structured loans with competitive terms for investors seeking short-term financing to acquire or rehabilitate single-family and multifamily properties.
Fix and Flip loans are for housing market investors profiting from the ability to purchase older derelict properties, fix them up, and either resell or rent out these properties for passive income. Borrowers with any level of investor experience can apply for these loans. They are suitable for non-owner-occupied single-family, multifamily, and up to four-unit property types. Purchase loans can qualify for up to 85% of the cost of the property, and construction loan amounts will go up to 100% of the cost. In addition, Fix and Flip loans offer a 12-month term with interest-only payments, so the investor will have a low monthly payment as they fix up the property.
In a Fix-and-hold, you will pull your profits out by refinancing once you finish the updates. That leaves you with a mortgage to pay each month. For this reason, fix-and-holds typically create future profits. Each year your rental property is occupied, your income goes toward paying off the mortgage. Once your mortgage is paid off, your rental income continues until you sell the property.
There is a lot to consider when deciding to invest in a property. The good news is there are options. Our loan officers are trained to assist you, and our dedicated Home Project Team will provide concierge service and take the mystery out of the building and renovation process, so contact our Home Project Team today.
