As the HGTV hit show “Fixer Upper” promises, “we take the worst house in the best neighborhood, and we turn it into our client’s dream home.”
If you have your eye on a fixer-upper in Hampton Roads, a renovation home loan could be the answer.
Did you know you can borrow funds to perform almost any type of improvement with minimal out-of-pocket investment when compared with paying the costs of renovations in cash?
The two most common renovation loan programs are FHA 203(k) and the Conventional Fannie Mae Homestyle Renovation loan.
These two programs allow borrowers to finance renovation costs into their mortgage. FHA 203(k) loans are available for primary residences only, while Conventional Homestyle renovation loans are available for primary residences, second homes, vacation homes and investment properties.
Both loan types can be used for a purchase or refinance.
Here are the specifications on a renovation loan:
The loan amount is based on, the lower of, either the total cost of the purchase price plus all renovation costs and fees or the “as completed” appraised value of the property. That means the added value of the repairs you plan to make.
You can finance up to six months of the mortgage payment into your loan amount in case you incur rental expenses during renovation period.
Renovation financing has low down-payment requirements for the purchase of a primary residence – only 3.5 percent on FHA 203(k) loan and 3 percent for conventional Homestyle loan.
As an example, if someone buys a $200,000 home and wants to make $50,000 in renovations, the down payment could be as low as $7,500, on a Homestyle loan, which is 3 percent of the total cost of the purchase price plus the renovation costs ($200,000 + $50,000 = $250,000).
Listed below are a few examples of popular home improvement projects you can complete through renovation loans.
- Kitchen remodel which can include new appliances, cabinetry, painting, counters, tiles and floor
- Bathroom remodels
- HVAC systems
- Knocking out walls or adding extra square footage for additional bedrooms or bathroom
- Roof
- Termite and moisture damage
The Homestyle loan program even allows you to use the renovation funds to install a pool.
One of my clients bought a foreclosure in Moyock and was able to finance new appliances and HVAC systems into the mortgage.
Once the renovations were done, the client even had equity in the property because of the low sales price and renovation upgrades.
If you’re willing to add renovation costs to your mortgage, you open up all kinds of possibilities to make a new home uniquely yours.
That’s why your dream home is closer than you think.
Shikma Rubin is a loan officer at Tidewater Home Funding in Chesapeake. You can reach her at srubin@tidewaterhomefunding.com or 757-490-4726.