Renovation Loans: FHA 203 (K), Fannie Home Style Renovation Mortgage and Conventional Rehab Loans
With a large number of homes still selling as short sales and foreclosures, renovation loans are becoming increasingly popular with home buyers. Currently, many family homes are being redesigned for additional family members. As rental housing costs rise, families decide to live together and save money. There are multiple situations that could apply: boomerang kids, elderly parents, or divorced with grandchildren – the family home needs an expansion or renovation to ensure everyone is comfortable.
Rehab loans, like the FHA 203 (k) program or the Fannie Mae Home Style Renovation Mortgage, are also the perfect answer for some first-time home buyers. If the borrower qualifies for the 203 (k) program, the buyer can borrow based on the expected value of the home after the rehabilitation is complete.
I’ll summarize some common home renovation loans available to consumers and some of the requirements for each. Interest rates are subject to change for each itemized loan, so be sure to check with a qualified loan officer first before embarking on a home purchase or refinance.
Renewal loans are effective for consumers, banks, and mortgage companies because they provide the resources necessary to remove foreclosures from the market and redo them. Additionally, these loans provide first-time home buyers (who have historically been 30-40% of a healthy housing market) the opportunity to renovate before moving in.
FHA 203 (k) Rehabilitation Loan
FHA-insured home renovation loans are more popular now than ever, because renovation resources are sorely needed. A simplified 203 (k) loan includes less than $ 35,000 in renewals. For home buyers who need more than $ 35,000 in rehab work, a full 203 (k) is needed.
To qualify for the FHA 203 (k) loan, the borrower must agree to hire a real estate consultant to evaluate the construction plan and approve each phase. The project must be completed in six months, with five drawings (or payments to contractors) allowed. A list of approved property renovations is included with the loan. Many borrowers feel that this loan is too complicated or that the renewal list is too restricted for their projects. But the interest rate on FHA loans is low enough to be worth it.
If you are interested in an FHA 203 (k) loan, find a mortgage broker with experience in this type of rehab loan to complete the transaction. FHA loans are often available for owner-occupied residences. These loans are government-insured and have a more expensive Mortgage Insurance Rate (PMI), with a 1.75% down payment and 1.35% monthly payment, compared to other loan products. Jeff Hurd, a mortgage banker at Fidelity Bank Mortgage in Newport News, Virginia, said, “With conventional rehab loans, the consumer has the option of paying the entire PMI up front, monthly, or having the lender pay it (LPMI).”
Fannie Mae HomeStyle Renovation Mortgage
Comparing the Fannie Mae HomeStyle loan to the 203 (k), Hurd says the HomeStyle loan product offers more flexibility with repairs and renovations and in the types of homes purchased. The Fannie Mae HomeStyle Loan offers a broader range of renovation projects and can be used on a second home and investment property, as well as a primary residence. “
Other benefits of Fannie Mae HomeStyle Renovation Mortgage include less money down than conventional rehab loans (a minimum of 5%) and a lower cost for mortgage insurance. Monthly mortgage insurance payments are lowered with higher down payments and / or a good credit score above 680. The conventional home style will generally present a PMI pricing advantage over the FHA. With the Fannie Mae HomeStyle Renewal Mortgage, purchases and home improvements can be combined into one loan for virtually any property, and it doesn’t have to be owned by Fannie Mae. Repairs or renovations must be permanently attached to the structure and add value to the property. Lenders must be pre-approved to sell this product, so be sure to ask the loan officer if they participate in this home finance program.
Rehabilitation loans: now is the time
Now is a good time to buy a home with a rehab loan. There are so many houses that may be in danger. Whether the home is owned by a bank, it’s a foreclosure or a short sale, or a homeowner is upside down and doesn’t want to put money into a property to fix it, there are homes to choose from. Right now, home buyers have a good chance to buy a home at a great price and renovate it with financing. These rehab loan products make it easy to buy a home and complete home rehab projects at the same time, before your move-in date. It is very likely that a consumer will be able to buy a property, do the necessary renovations, and walk out of the transaction with the equity in the home. Hurd says, “There is a market of smart consumers ready to buy these homes now.”
The housing market has changed tremendously in the last five to seven years. Because there are still vacant properties available in this real estate market, rehab loans are a means of obtaining these properties that need repair. Homebuyers can now expand their options for homes to live in because they can remodel them to suit their needs. Real estate investors can buy, rehabilitate and rent or resell the property.
Rehab loans are an excellent real estate market stimulus and a great way for home buyers to buy what they want without having to worry about paying off cash investments or having tens of thousands of dollars in addition to a mortgage to finance home renovations. households.