Sunday, September 13, 2015

Bring New Life to a Home With a Home Renovation Loan


You have your heart and mind set on a mid to late century split level with a large lot not far from the interstate and downtown. But your friends and family feel a new home is a much better deal as they warn you about termites, faulty wiring and leaky pipes. You could go with a brand new home, but the 30 to 40 minute commute overwhelms you. Don't give up on your plans; you can make an old home feel new again! With a home renovation loan you can purchase and fix up your new home with one loan. Now you can have it all: the nice home, the awesome neighborhood and the short commute to downtown.

First, you need to know your loan options.

There are 4 types of home renovation loans:

Streamline FHA 203K

This loan is for primary residencies that need limited repairs of less than $35,000. The 203K requires as little as 3.5% downpayment of your acquisition cost. So if you get a $200,000 loan, your downpayment after the contract price and repairs is $7,000. The Streamline 203K is great for folks who have a lower credit score of 640. There's no consultant to manage the repairs-this loan is for "streamlined," and it can be occupied immediately after closing. You can have up to three contractors that need to be licensed for any specialty work. The contractor will receive one draw in the amount of 50% of the total contract and then the final payment balance upon work completion.

Consultant FHA 203K

This loan is typically used for homes with repairs of over $35,000 or that require structural repairs for the foundation, well or swimming pool. There should only be one general contractor (GC), but there can be up to three contractors. The main difference between this loan and the Streamline is you need to hire a HUD-approved consultant to work with the GC to protect the buyer's and lender's interest and makes a draw schedule so that the renovation funds are disbursed properly. Contractors get no money up front, and their fee is based on work completed. The HUD consultant will know what money to draw out to the contractors based on the amount of work completed.

Homestyle Renovation Loan

This is a conventional Fannie Mae loan requiring as little as 5% down for primary residences, 10% down for a second home and 20% down for an investment property. If you put 20% down, you do not need to have mortgage insurance. This loan works like the 203K and has a streamline and consultant category.

Homepath Renovation Loan

This loan is for foreclosures owned by Fannie Mae and it can be for a primary residence, a second home or an investment property. You can put 3% down for primary residences with no mortgage loan, but for investment properties you'll need 15% down.

Most people don't know these loans even exist, but now you do! The best part of these home renovation loans is that you're working with a team and you don't have to renovate a home on your own dollar.

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