Renovation Mortgage Types

Renovation Mortgage Types

There is more than one way to turn a house you like into the home of your dreams. Here is some general information on two of the most popular renovation mortgage loans available. If you would like to learn more, I would be more than happy to schedule a meeting with you!

FHA 203k (Standard/Limited)

Buying new is great, but sometimes it’s not always in the cards. Whatever the reason, some homebuyers aren’t able to put 10%, 20% or 30% down for a traditional mortgage.

For these buyers, the FHA 203K mortgage loan can be a great alternative. It allows buyers to purchase a house they like and renovate it into the home of their dreams without taking on a mountain of consumer debt. As an FHA loan, buyers are responsible for just a 3.5% down payment, which includes the cost of the house as well as the total cost of the renovations.

Because renovation costs are rolled into the mortgage, buyers pay for them over time instead of having to pay it right away (the aforementioned ‘mountain of consumer debt’). FHA 203K loans can also be used to make energy-efficient, or ‘green’ upgrades.

There are two types of FHA 203K loans:

  • Standard – Used for adding rooms, raising a house/foundation, tearing a house down and rebuilding, structural repairs, and any other repairs over $35,000.
  • Limited – Used for limited repairs, such as cabinetry, countertops, carpet, paint, and any other repairs under $35,000 that aren’t structural.

Of course, there are some stipulations:

  • Home must be at least one year old and be the buyer’s primary residence
  • Rehabilitation cost must be at least $5,000
  • Buyer must pass a credit check, have steady income, and have the financial reserves to make the monthly mortgage payment

HomeStyle Renovation

A HomeStyle Renovation loan gets you the funds you need to cover the cost of repairs, remodeling, renovations, or energy-efficient upgrades to your home.

While repairs aren’t held to any prerequisite improvements, restrictions, or minimum dollar amount, they must be permanently affixed to the real property and add value to it.

  • 5% minimum down payment for primary, single-family homes
  • 3% minimum down payment if using gift funds toward down payment and closing costs toward owner occupied, primary residences
  • 3% seller contribution allowed
  • Cosmetic and structural renovations allowed, including landscaping, appliances, swimming pools, etc.

Energy-efficient Upgrades: An energy report that identifies recommended energy improvements and any associated cost savings after the improvements are made must be obtained before borrowers are approved for a HomeStyle Renovation Loan.

Whether you’re looking to purchase a home and fix it up, or refinance and remodel your current home, HomeStyle is an effective option for affordable property improvements.