Financing a fixer-upper with renovation loans

Financing a fixer-upper with renovation loans

Financing a fixer-upper with renovation loans

You found a great house that is priced to sell but requires work. While you might be handy or know a great contractor, financing a fixer-upper can be tricky. When you finance a home, an appraisal is required to determine its value. Your property serves as collateral for your loan.

A fixer-upper that needs a new roof or requires other major, non-cosmetic repairs can be a great bargain, but financing it can be a challenge. However, an FHA 203(k) renovation loan or a Fannie Mae Homestyle Renovation Mortgage may be the answer you’re looking for.

The FHA 203(k) loan can help you repair a fixer-upper property

An FHA 203(k) loan – insured by the Federal Housing Administration – lets you borrow more than the cost of the house, as long as the repairs will increase its appraised value. FHA 203(k) comes in two iterations: standard and limited.

Virtually any type of renovation is eligible to be covered with a 203(k) loan, but you must hire a 203(k) consultant for the project. The consultant is qualified to screen financial feasibility for the loan, prepare or contract for architectural documents, and oversee the renovations.

The mortgage limits must also conform to regional maximums, which vary throughout the country.

The FHA 203(k) standard – major renovations

The FHA 203(k) standard targets homes that need major renovation. Even homes that need to be completely scrapped can qualify for a 203(k) loan as long as the foundation remains intact. The total renovation costs must be a minimum of $5,000.

Improvements and/or repairs include: structural alterations and additions; upgrade or modernization of central air/heat, plumbing, and electrical systems; increasing the building footprint; moving a home to a new lot; remodeling of kitchen and bathrooms; foundation repair; addition or replacement of exterior decks, patios, terraces, and porches; and more.

Minimum credit score and other restrictions apply.

The FHA 203(k) limited – minor renovations

The limited version of the FHA 203(k) is tailored towards minor, non-structural, remodeling projects. However, the cost of the renovations must not exceed $35,000. 203(k) limited repairs are often applied to: roof, gutters and downspouts; HVAC systems; plumbing and electrical systems; painting exterior and/or interior; storm windows and doors, insulation, weather stripping, etc.; purchase and installation of appliances; accessibility improvements for persons with disabilities; exterior decks, patios, porches; and basement finishing and remodeling, waterproofing.

Minimum credit score and other restrictions apply.

The Fannie Mae HomeStyle Renovation Mortgage

The Federal National Mortgage Association – commonly known as Fannie Mae – offers a loan that rolls a home acquisition and funds for structural remodeling into one loan. The key detail here is “structural,” since any improvements must be attached to the structure of the home and add value.

Renovations, repairs or improvements must not exceed 75% of the as-completed value of property. Additional eligibility requirements apply, including income and purchase limits, and minimum FICO credit score. Contact First Centennial Mortgage for renovation loan advice.

At First Centennial Mortgage, we provide creative and flexible mortgage solutions that can help you renovate an older property. We can also tailor a conventional loan to suit your particular needs. Contact us today about any aspect of mortgage or housing finance. We’d love to help you out!

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