Renovation Loans: FHA 203(K), Fannie Homestyle Renovation Mortgage and Conventional Rehab Loans

Renovation Loans: FHA 203(K), Fannie Homestyle Renovation Mortgage and Conventional Rehab Loans

With many homes still being sold as short sales and foreclosures, home improvement loans are becoming increasingly popular among home buyers. Many family homes are being remodeled for additional family members these days. As the cost of renting housing rises, families decide to live together and save money. There are many situations that could apply: boomerang children, aging parents or divorcees with grandchildren – the family home needs an extension or renovation to ensure that everyone will fit comfortably.

Rehab loans like the FHA 203(k) program or the Fannie Mae HomeStyle Renovation Mortgage are the perfect answer for some first-time homebuyers as well. If the borrower qualifies for the 203(k) program, the buyer can take out a loan based on the expected value of the house after home renovations are completed.

I’ll summarize some common home improvement loans available to consumers and some of the requirements for each. Interest rates are subject to change for each loan, so be sure to consult with a qualified loan officer first before embarking on a home purchase or refinance.

Renovation loans are effective for consumers, banks and mortgage companies because they offer the resources needed to get foreclosures out of the market and re-renovated. Plus, these loans give first-time home buyers (who have historically been 30-40% of the healthy real estate market) the ability to renovate before they move in.

FHA 203(k) Rehabilitation Loan
FHA insured home renovation loans are more popular now than ever because renovation resources are much needed. A simplified 203(k) loan includes less than $35,000 in repairs. For home buyers needing more than $35,000 in rehab, a full 203(k) is required.

To qualify for an FHA 203(k) loan, the borrower must agree to hire a real estate consultant to evaluate the construction plan and sign off on each phase. The project must be completed in six months, with five withdrawals (or payments to contractors) allowed. A list of approved property repairs is included with the loan. Many borrowers find this loan too complicated – or the list of repairs too limited for their projects. But the interest rate on FHA loans is low enough to make it 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 deal. FHA loans are typically offered for owner-occupied homes. These loans are government insured and have a more expensive PMI rate, with a 1.75% down payment and a monthly payment of 1.35%, compared to other loan products. Jeff Hurd, a mortgage banker at Fidelity Bank Mortgage in Newport News, Va., said, “With conventional rehab loans, the consumer has the option of paying all of the PMI up front, monthly, or having the lender pay it (LPMI).”

Fannie Mae HomeStyle Renovation Mortgage
When comparing the Fannie Mae HomeStyle loan to a 203(k), Hurd says the HomeStyle loan product offers more flexibility in repairs and renovations and the types of homes purchased. The Fannie Mae HomeStyle loan offers a wider range of renovation projects and can be used for a second home and investment property as well as a primary residence.”

Other benefits of the Fannie Mae HomeStyle Renovation Mortgage include less money down compared to conventional rehab loans (5% minimum) and less mortgage insurance costs. Monthly mortgage insurance payments are reduced with higher down payments and/or a good credit score above 680. Conventional Homestyle will typically present a PMI pricing advantage over FHA. With Fannie Mae’s HomeStyle Renovation Mortgage, home purchases and improvements can be combined into one loan for virtually any property—and it doesn’t have to be Fannie Mae-owned. The repairs or renovation 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 he or she participates in this home financing program.

Rehab Loans – The Time Is Now
Now is a great time to buy a home with a rehab loan. There are so many houses that could be in trouble. Whether the house is owned by a bank, or is in foreclosure or short sale, or a homeowner is upside down and doesn’t want to put the money into a property to fix it up, there are homes to choose from. Right now, home buyers have a good opportunity to buy a house at a great price and renovate it with the financing. These rehab loan products make it easy to buy a house and complete home rehab projects at the same time, before your move-in date. Chances are excellent that the consumer can purchase a property, make the necessary repairs, and walk out of the deal with equity in the home. Hurd says, “There is a market of savvy consumers ready to acquire these houses now.”

The housing market has changed significantly over the past five to seven years. Since there are still vacant properties in this real estate market, rehab loans are a means of getting those properties in need of repair. Homebuyers can now expand their choice of homes to live in because they can remodel to suit their needs. Real estate investors can buy, rehabilitate and rent or resell the property.

Rehab loans are a great boost to the real estate market and a great way for homebuyers to purchase what they want without worrying about liquidating cash investments or tens of thousands of dollars on top of a mortgage to finance a home renovation.

#Renovation #Loans #FHA #203K #Fannie #Homestyle #Renovation #Mortgage #Conventional #Rehab #Loans

Leave a Comment

Your email address will not be published. Required fields are marked *