Have you ever wanted to buy a “fixer-upper” or update/renovate your home only to realize you don’t have the extra cash laying around?
There might be a solution for you. Here are two loan options you should check out: the FHA 203K mortgage loan and the Fannie Mae Home Style loan mortgage. These loans allow you to purchase a home with a reserve put in escrow to fund renovations. Here is a little insight into each of these loans.
The FHA 203K is a government loan backed by the Federal Housing Authority (FHA). Because it is backed by FHA, lenders are willing to move forward with a property they otherwise wouldn’t touch.
There are a few requirements related to this loan: you must have a minimum credit score of 640; it has to be owner occupied or for a nonprofit organization; your project must be completed within six months; and you must borrow at least $5,000 with maximum limits set by the FHA that vary by location.
The interest rate will vary, depending on market rates as well as customer credit. You can expect to pay a rate 1% or so higher than a standard loan. The down payment on a 203k loan, like other FHA loans, can be as little as 3.5% up front. You’ll also pay an up-front mortgage insurance premium (MIP), and a small ongoing fee with each monthly payment.
In addition, be prepared for extra time and paper work. These loans are notorious for such and you will inevitably have to wait on answers from the FHA and your lender.
The HomeStyle® mortgage is Fannie Mae’s version of the FHA 203k loan. It’s a convenient and economical way to make moderate repairs and renovations to your home via a “single-close” mortgage.
Some of this loan’s requirements are as follows: you must have a minimum credit score of 620 for a primary residence or 700 on a second home or investment property; and renovations must be completed within 12 months. Seller concessions are permitted with this loan, meaning home sellers can pay your closing cost if you remember to add it to your contract.
The interest rate will vary, depending on rates in general and your credit. For borrowers with good credit, this mortgage allows as little as a 5% down payment.
Eligible home improvement projects include remodeling of a kitchen or bathroom; installation and upgrading of landscaping; replacement of home appliances; and “luxury” home improvements such as the addition of an in-ground swimming pool.
Contact me today for help in finding your home or for more information on either of these loans.