If you just bought a house that fits your budget, but it needs some upgrading and repair, you’re probably wondering how you can swing both a mortgage payment and pay for the renovation costs.
Fortunately, you have options. One is the Section 203(k) mortgage, available through the Federal Housing Administration (FHA). Another is Fannie Mae’s Home Style Renovation Mortgage. Many private lenders offer mortgages directed to buyers needing repair or renovation. These are designed to allow home buyers to finance both mortgage and renovation together. It offers an opportunity to finance an affordable house and also finance it renovation.
Doing both a mortgage and renovation loan at once may actually save you money, as it eliminates the need for two appraisals and title searches, and interest rates are comparable to rates for standard mortgages.
FHA’s Section 203(k) mortgage combines the cost of the purchase and renovation in one loan and are available nationwide, Interest rates are compatible with standard home loans. You qualify if the property is at least a year old, and the renovation has to total at least $5,000.
The benefit of the 203(k) is that you use the future or expected value after the improvements are made. So a home that costs $100,000 and require $25,000 in improvements, the loan will be for the entire $125,000. The portion of the loan designated for improvements is paid in installments as the work is completed.
Fannie Mae’s Home Style Remodeler is similar. The borrower finds a licensed contractor who submits detailed work plans and specifications to the lender.
