Are you considering buying a fixer-upper? A home renovation loan is a phenomenal option for buyers struggling to find a home that meets their needs, or for those who want to purchase a fixer-upper at low cost and build equity by renovating and improving the property.
Perhaps you are considering a second home or an investment property. There are some Renovation Loans that can be used for this purpose also.
A renovation loan allows the borrower to ﬁnance not only the cost of the home, but the desired repairs – all in one mortgage. There are multiple renovation loan options, and there are many lenders who can help you determine which one is right for you.
Here are some of the Renovation Loan types to consider for your fixer-upper purchase.
The HomeStyle Renovation Loan: This is a conventional mortgage that allows the borrower to make repairs to anything permanently affixed to the property and is able to accommodate both structural and non-structural repairs. Landscaping and site amenities are also allowed.
Mortgage Insurance is required for any Loan-to-Value that exceeds 80%.
For a first-time homebuyer, the Loan-to-Value will only require Mortgage Insurance if the loan exceeds 97%. For buyers who have previously owned a home, the Loan-to-Value threshold is in excess of 95%.
This type of Renovation Loan can also be used when purchasing a second home; the Loan-to-Value threshold for Mortgage Insurance is that which exceeds 90%.
Wanting to purchase an Investment property? You can still use this Renovation Loan with Mortgage Insurance on a Loan-to-Value over 85%.
The FHA 203k Standard Loan: When a home needs structural work, involves non-safety related landscaping, or when the renovation costs exceed $35,000, the FHA 203k Standard Loan is likely the one to use. This loan requires a minimum of $5,000 in repairs, and there is no cap on the renovation budget; however, FHA maximum loan limits will apply.
In addition to the contractor, the borrower is required to have a HUD Consultant who will help ensure that all minimum property standards are met and that the contractor has completed the work according to the contract. Allowed maximum Loan-to-Value for the FHA 203K Standard Loan is 96.5%.
The FHA 203k Limited Loan: This Renovation Loan is used when a home needs non-structural or cosmetic work. There is no minimum dollar amount for repairs, but the total renovation budget must be less than $35,000. No HUD Consultant is required. The borrower will simply complete a written work plan which will demonstrate their understanding of the contractor’s bid. Max Loan-to-Value for this loan is 96.5%.
Wondering if any of these loan products will aid you in purchasing a fixer-upper? Let’s get together to discuss!
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