What can you do to finance renovations in your current home or in the home you’ve just purchased?
Ultimately, there are two loan programs that we look at when someone is looking to do a renovation loan: the 203(k) loan, which is the FHA’s version of the loan, or the conventional version of a renovation loan, which is also called Fannie Mae’s homestyle renovation loan.
“We take the purchase price of the home, plus the estimated cost of repairs, plus whatever down payment is required by the program to determine what we will lend.”
As lenders, we would take the purchase price of the home plus the estimated cost of repairs, which is done via a home inspection, as well as whatever down payment is required by the program to determine what we will lend.
Let’s say the purchase price of a home is $100,000. We would take the purchase price plus the cost of repairs (say, $20,000) and lend, for an FHA loan, 96.5% of that $120,000.
There are many benefits provided by a renovation loan, especially as purchase prices and interest rates continue to climb. A lot of first-time homebuyers are being priced out of the market, so having a renovation option allows them to look at cheaper homes that may need some work. They wouldn’t qualify for traditional financing, so they would need a renovation loan to make the home livable.
If you or anyone you know have questions regarding renovation loans or how to finance them, please don’t hesitate to reach out to me. I’d be glad to discuss the subject in more detail with you.