Sometimes you find the perfect location, but the existing house isn’t quite the home of your dreams. If a little work could transform the property, we encourage you to learn about home renovation loans. With the right loan, you could revamp and remodel the house so that it better fits your needs. There are several different types of home renovation loans, so you’ll need to explore your options to find the program that will allow you to make the improvements that you’re envisioning a reality.
Types of Home Renovation Loans
Renovations can have a major impact on a house’s appearance, functionality, livability, and value, and that’s clearly a positive thing for homeowners. In fact, the National Association of Realtorsreports that some 75 percent of owners say they experience a greater desire to spend time in their homes after remodeling. If you’re interested in purchasing a property and remodeling it or refinancing your mortgage to fund renovations, spend a little time investigating the types of home renovation loans available.
The FHA 203k Renovation Loan Program
When you want to repair, upgrade, or remodel a home for use as your primary residence, and you need funding to make it happen, the Federal Housing Administration’s 203k Renovation Loan Programis one loan program to consider. Designed to allow borrowers to purchase a new home or refinance their current one while simultaneously borrowing the funds necessary for renovations, it streamlines the process of funding a renovation. Instead of having to secure a separate construction loan or a second mortgage, you’re able to get the money needed to fix up the home and the mortgage in a single loan with one set of paperwork, one pool of closing costs, and one monthly payment. Plus, the program lets you borrow based on the improved value of the property, which increases the funding available for repairs and limits your out-of-pocket costs. With a FHA 203k Renovation Loan, the following conditions apply:
- Borrowers can receive a loan of up to 110 percent of the property’s value after improvements are completed.
- Borrowers must have a credit score of at least 580. Some lenders may have stricter requirements.
- The required down payment is just 3.5 percent.
- Up to 6 percent of closing costs can be paid by the seller.
- Major items like foundation repair, roof replacement, mold remediation, remodeling of kitchens and bathrooms, and central heating and air system work are allowed.
- Optional renovations are permissible, but there are limits to what the funds can be used for. Luxury renovations are not allowed.
- Closing can be completed before any renovation work begins.
- Funds for renovations are placed in an escrow account after closing and disbursed as the rehabilitation is completed.
The Fannie Mae HomeStyle1 Renovation Loan
The HomeStyle Renovation Loan from Fannie Mae is another “one-time-close” home renovation loan that allows borrowers to secure the funds needed for both purchase and renovation in one step. Much like a 203k Renovation Loan, this loan lets you borrow based on the expected improved value of the property rather that its current value. However, the HomeStyle Renovation Loan is open to more types of properties. While it can be used to purchase and improve your primary residence, it can also be used for vacation homes and rental properties. With a HomeStyle Renovation Loan, the following conditions apply:
- Borrowers can get renovation funding totaling up to 75 percent of the property’s value after improvements are completed.
- Borrowers must have a credit score of at least 620. Some lenders may have stricter requirements.
- The required down payment is 5 percent.
- Funds secured with this loan may be used for renovations or repairs that add value and are permanent.
- Funds for renovations are placed in an interest-bearing custodial account after closing and disbursed as the work is completed. Any funds remaining after the work is complete are applied to the mortgage balance.
PrimeLending’s Buyer/Seller Funded Repair Escrow Program
While 203k and Homestyle Renovation Loans get plenty of attention, there are other types of home renovation loans available. What if you’re interested in a home with a motivated seller who lacks the time or money to complete the needed rehab? PrimeLending’s Buyer/Seller Funded Repair Escrow Program might be the answer. This program lets a seller fund an escrow account so that the buyer can complete the repairs and renovations. With PrimeLending’s Buyer/Seller Funded Repair Escrow Program, the following conditions apply:
- All improvements must add value and attach to the property. A renovation team will review the planned repairs to determine eligibility.
- A contingency reserve equal to 10 percent of the repair amount is required.
- Funds set aside can total up to 10 percent of the improved value plus the required contingency reserve.
- Borrowers can be utilizing conventional and FHA loans. VA and USDA loans can be used only with seller funding.
- The window allotted for repairs is 30 days.
- The repairs cannot be completed by any interested party, including the borrower, their employer, a family member, the realtor, or the seller.
PrimeLending’s USDA Repair Escrow
When you apply for a loan guaranteed by the U.S. Department of Agriculture (also known as a USDA loan), an appraisal is required to ensure that the property meets the USDA’s standards. If the home does not meet the minimum property requirements (MPRs) and the appraiser requires repairs to bring the house up to its standards, PrimeLending’s USDA Repair Escrow may be used. You can finance up to 100 percent of the purchase price, and you won’t be required to pay a monthly mortgage insurance premium!
PrimeLending’s VA Renovation Loan
Active duty service members, honorably discharged veterans, members of the National Guard and Reserve, and surviving spouses are eligible for traditional VA loans. Did you know that if you qualify for a VA loan, you also qualify for PrimeLending’s VA Renovation Loan? This loan program offers the same features as traditional VA loans, but it also helps you make repairs or upgrades to a fixer upper. The application process is simple, the loan amount can extend up to $1 million, and you can start repair work immediately after closing on the property. Plus, since you can roll all of your renovation costs into one loan, you will only have to worry about making one payment each month.
Contact PrimeLending Today
When you’re ready to find your perfect home, whether it requires one of these types of home renovation loans or not, start your search by getting prequalified2 for a mortgage. It’s incredibly easy and a fantastic way to find out how much you can afford to spend. Contact PrimeLending of Springfield, Missouri, today to begin your journey to homeownership. With our expertise and commitment to clear and timely communication, we can guide you through the process from application to closing. To learn more about getting preapproved or how to make an offer on a home, please call 417-616-0777 or contact us online.
1 Homestyle a registered trademark of Fannie Mae.
2A prequalification is not an approval of credit, and does not signify that underwriting requirements have been met.