203K Rehab Mortgage Loans
If you have ever driven by an abandoned property and wondered how you could fix it up like new, you are not alone. Many people have distressed properties on their radar, looking at their potential rather than their neglect.
In the past, financing these forgotten homes was difficult because their value did not correspond to local economic trends.
FHA 203(k) Loan Eligibility
You may be familiar with traditional FHA loans, but 203(k) loans give you more flexibility when it comes to repairs. This loan wraps your principal and renovation expenses into one monthly payment. Up to $35,000 can be borrowed for repairs alone, depending on the property’s needs. The lender does not hire contractors because you control the fund dispersal as needed through the renovation process.
Renovation Home Loans, through federally-backed funds, make it possible to finance the home and repair it at the same time. When individuals improve one property, it tends to inspire others to work on their homes, effectively increasing the community’s value and beauty. Take a look at all the different Renovation Home Loans available from lenders.
- One to four-unit home compelted for at least a year
- All new constructed units must be attached to existing dwelling
- Demolished homes still remaining on existing foundation
- Coverting a one unit dwelling into a two, three or four unit home
Keep in mind that luxury improvements may not be eligible. For eligible improvements however, a homeowners may use the loan to finance any and all items such as, paints, decks, additional rooms.
To be considered eligible, you must have a good credit score of 640 or higher, with a DTI, or Debt-To-Income, ratio of 43 percent or lower. The property itself cannot be in a dilapidated shape because the FHA can only approve loans that will reflect a 110 percent Loan-To-Value, or LTV, ratio after renovations are completed.
With these guidelines, 203(k) loans allow you to make small to medium repairs compared to a complete demolition and rebuild project. For most properties, you must be the primary resident, although there are some exceptions.
Fannie Mae HomePath
As an alternative to FHA loan, Fannie Mae is also a federally-backed mortgage program that offers renovations and principal combined into one home loan. The repair amount at $35,000 remains the same, but eligibility is slightly different. Fannie Mae makes it possible for more people to find and purchase fixer-upper homes.
Fannie Mae’s HomePath program only requires a 3 percent down payment instead of 3.5 percent requested of FHA borrowers. This chief difference makes many potential borrowers use this loan program instead of the FHA types. No appraisal or Private Mortgage Insurance is necessary which effectively streamlines the loan application process. The property can even be a second home; you are not required to live in the property to be eligible. If you have a credit score ranging from 620 to 660, the HomePath loan may be the best loan in your situation.
Fannie Mae HomeStyle
If you currently have a Fannie Mae loan, but need more funds to complete luxury detail renovations, a HomeStyle mortgage could be your solution. You can also use it to purchase a home that has some high-end repairs necessary, such as refinishing a backyard pool. You have more flexibility when it comes to LTV because the loan is based off of the completed improvements. For example, a primary residence can be approved for a loan with an LTV of 95 percent rather than the standard 80 percent. Lenders know that certain repairs, such as kitchen renovations, add substantial value to the property. When it is improved, it helps both the owner and lender manage the property without any underwater issues.
Energy Efficient Mortgages
Adding energy efficient windows or solar panels to your home can be costly if you must pay for them outright, but they save you money over the long-term. The government has seen this need for energy efficient financing and came up with EEMs, or Energy Efficient Mortgages. Your principal and potential energy improvements combine into one loan for a normal 15 or 30 year term. As you make your home more energy efficient, you pull funds from the loan to cover the expenses. Your monthly payment remains the same over the loan’s life. Although you must qualify under FHA eligibility requirements, the down payment is only 3 percent, making this loan work for you as the home appreciates in value with low energy bills.
Renovation Home Loans provide you with an outlet to improve your home’s functionality and appearance. Set your goals for your new or existing property and speak to a lending professional. It is time to modernize your space.