• Renovation

  • How Do Home Renovation Loans Work?

    If you’re buying a home that needs repairs, there are multiple loan options available. How a home renovation loan works will depend on the type of financing you decide to apply for. Popular home renovation loan options include the following programs:

    Fannie Mae HomeStyle®: The Fannie Mae HomeStyle® loan is a single-close loan that includes the cost of home repairs in the overall loan amount. This loan can be used for repairs that an appraiser requires, or for changes the homeowner wants to make, and it can be used to pay for both structural and cosmetic repairs.

    This loan appeals to borrowers because they only have to deal with one loan, one monthly payment and lower interest rates that cover both the purchase price and the cost of repairs. You can select either a 15- or 30-year mortgage term, along with adjustable-rate options. With a HomeStyle® mortgage, your final loan amount is based on the projected value of the home after the repairs are completed. Fannie Mae’s HomeStyle® loan is a sound choice for a buyer with top-notch credit who has access to competitive interest rates.

    FHA 203(k): This government-backed loan is similar to HomeStyle®, but it’s open to buyers with lower credit scores. This is usually the more expensive option of the two because FHA mortgages have higher mortgage insurance premiums for borrowers who apply with smaller down payments. These mortgages have an upfront fee that's included in the overall principal of the loan.

    FHA 203(k) loans are divided into full and streamline options, and the type you need will depend on the state of your property. The FHA 203(k) Full Loan is intended for a primary residence that needs serious or significant repairs, while the Streamline Loan is used to cover minor repairs totaling less than $35,000.

    USDA Rural Development Home Repair Loans: The USDA offers funding through its Rural Development program to help homebuyers secure safe, decent housing. This financial assistance can be used to cover new appliances, foundations, siding, roofing, windows, plumbing, electrical improvements, and other necessary upgrades for health and safety reasons. The program’s eligibility is based on income (up to 50% of the area’s median income) and rural location.

    If you can’t afford to fund your home renovations out of pocket, a home renovation loan is not your only option. You can also do a Cash Out Refinance based on your homes equity. Call me for more details or information.