Loan Options for Remodeling Projects
Renovation loans provide homebuyers and homeowners a unique way to finance their home improvements without having to take out a second mortgage lien.
On a purchase, renovation financing gives many additional options to the potential homes to buy. Not only do they provide the only financing available for homes in disrepair – like foreclosures and short sales – but they also allow buyers to conduct their home search by location or school district rather than endlessly hunting for the home that fits all their criteria.
When you house hunt knowing that you can improve, change or expand a home, it changes the game. Renovation financing allows you to get everything you can afford, no settling required. With a renovation refinance you can make the same upgrades as a purchase. You can also avoid the effort required to uproot and move a household.
FHA 203K Renovation Loans
FHA 203k comes in TWO forms – the Limited 203k and Standard 203k
The original renovation mortgage, the 203K, has been around since the 1970’s. The Streamline – now called the Limited 203k – is a more recent development, but still has been a renovation staple for decades.
Much like traditional FHA financing, the 203K offers the same low-down payment and flexible credit guidelines. Guidelines include, 3.5% down with all your renovations financed and part of the down payment calculation and credit scores starting at 600.
Conventional HomeStyle Renovation Loans
HomeStyle renovation loans are the prettier sister to the 203k allowing luxury items, including but not limited to pools and cosmetic landscaping. If you can qualify for conventional mortgage financing you can likely qualify for the HomeStyle.
Higher loan limits and increased occupancy eligibility for vacation homes and investment properties; the HomeStyle Renovation is less restrictive on repair scope and much better suited for buyers with more than 3.5% to put down.
Green and Energy Efficient Renovation Loans
Energy efficient homes sell for as much as 30% more than houses without green home improvements. According to the National Association of Home Builders (NAHB®) they survey potential homebuyers on their “must-have/required” and “desirable” home features frequently and have recently determined that buyers in the market for a new home are overwhelmingly leaning toward energy efficiency as a must have.
In fact, EnergyStar® appliances topped the list with 94% of homebuyers preferring a home with them included. Appliances don’t stand alone – 91% surveyed want an EnergyStar® rating for the entire home.
It is very important that you seek out an experienced renovation lender if you want to pursue renovation financing. Renovation loans require expertise.
Frequently Asked Questions About Renovation Loan Options
The Standard 203(k) loan allows for up to six mortgage payments to be included in the renovation funds to cover housing for the period when the home is uninhabitable during renovation. A streamlined 203(k), however, cannot be used if the home will not be habitable at any time during the renovation.
The 203(k) loan program is eligible for use on single family homes,1- to 4-unit buildings; following specific guidelines, the 203(k) mortgage can also be used on a condominium unit for improvement of the interior only. The program allows for financing mixed-use building projects that combine retail or commercial space with residential space. In these cases, the 203(k) loan can only be used for renovation of the residential portion of the building.
A 203(k) loan can be used to purchase a HUD-owned property that is determined by HUD to be eligible for the program.
Yes, the FHA allows the use of an EEM, which provides funds beyond the FHA loan limits and the buyer’s approved loan amount for improvements that increase the energy efficiency and lower the utility costs of the home. An energy audit must be conducted by an approved home energy rater to assure that the energy savings over the useful life of the improvements will exceed their costs. The total amount of an EEM mortgage can be up to 5% of the value of the property.