With a plethora of homes still being sold in the form of short sales and foreclosures, home improvement loans are increasingly popular with home buyers. Nowadays, many family homes are being redeveloped to accommodate other family members. As rental housing costs rise, families decide to live together and save money. Multiple situations may apply: boomerang children, aging or divorced parents with grandchildren – the family home needs to be expanded or renovated to make sure everyone fits in comfortably.
Rehabilitation loans such as the FHA 203 (k) program or the Fannie Mae HomeStyle Renovation mortgage are also the perfect answer for some first-time buyers. If the borrower qualifies for the 203 (k) program, the buyer can borrow based on the home’s estimated value after the home’s rehabilitation is complete.
I will summarize some common home improvement loans available to consumers and some of the requirements for each. Interest rates are likely to vary for each itemized loan, so be sure to check with a qualified loan officer first before embarking on home buying or refinancing.
Home improvement loans are effective for consumers and banks and building societies because they provide the resources to remove foreclosures from the market and remake them. In addition, these loans offer first-time home buyers (who have historically accounted for 30 to 40% of a healthy real estate market) the opportunity to renovate before moving in.
Rehabilitation loan FHA 203 (k)
Home improvement loans insured by the FHA are more popular than ever, as the resources for renovations are badly needed. A 203 (k) simplified loan includes less than $ 35,000 in renovations. For buyers requiring more than $ 35,000 in rehabilitation work, a full 203 (k) is required.
To be eligible for the FHA 203 (k) loan, the borrower must agree to hire a real estate consultant to assess the construction plan and sign each phase. The project is to be completed in six months, with five drawings (or payments to contractors) authorized. A list of approved home renovations is included with the loan. Many borrowers find this loan too complicated – or the list of renovations too small for their projects. But the interest rate on FHA loans is low enough that it is 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 generally available for owner occupied residences. These loans are government insured and have a higher Mortgage Insurance Rate (PMI), with an initial payment of 1.75% and a monthly payment of 1.35%, compared to other loan products. Jeff Hurd, 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 it paid for by the consumer. lender (LPMI). “
Fannie Mae’s HomeStyle Renovation Mortgage
Comparing the Fannie Mae HomeStyle loan to 203 (k), Hurd says the HomeStyle loan product offers more flexibility in repairs and renovations and in the types of homes purchased. The Fannie Mae HomeStyle Loan offers a wider range of home improvement projects and can be used on a second home and investment property as well as a primary residence. “
Other benefits of Fannie Mae’s HomeStyle renovation mortgage include less money than conventional rehab loans (a minimum of 5%) and lower costs for mortgage insurance. Monthly mortgage insurance payments are reduced with higher down payments and / or a good credit score above 680. The conventional house style will generally have a PMI tariff advantage over the FHA. With the HomeStyle Home Improvement Mortgage from Fannie Mae, home purchases and improvements can be combined into one loan for virtually any property – and Fannie Mae doesn’t have to be owned by Fannie Mae. . Repairs or renovations should 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 are participating in this mortgage finance program.
Rehabilitation loans – the time is right
Now is the perfect time to buy a home with a rehab loan. There are so many houses that can be in distress. Whether the house is owned by a bank, whether it is a foreclosure or a short sale, or a homeowner is upside down and unwilling to invest money in a property for the repair, there are homes to choose from. Right now, home buyers have a good opportunity to buy a home cheaply and renovate it with financing. These rehab loan products make it easier to buy a home and complete home rehabilitation projects at the same time, before the move-in date. There is a good chance that a consumer will be able to purchase a property, make the necessary renovations, and walk away from the transaction with the equity in the home. Hurd says, “There is a market of savvy consumers ready to buy these homes now. “
The housing market has changed dramatically over the past five to seven years. Because there are still vacant properties available in this real estate market, rehabilitation loans are a way to get those properties in need of repair. Home buyers can now broaden their choice of homes they can live in as they can renovate them to suit their needs. Real estate investors can buy, rehabilitate and rent or resell the property.
Rehabilitation loans are a great stimulus to the real estate market and a great way for home buyers to buy whatever they want without having to worry about winding up cash investments or having tens of thousands of dollars. in addition to a mortgage to finance home renovations.