By Carrie Courtillet
May 2, 2019
Loan Programs for Home Remodeling
As the weather starts to warm up, homeowners might begin thinking about home improvement projects. That’s why May is National Home Remodeling month! Owning a home is one of the biggest investments you’ll make, so it’s important to keep up with home maintenance.
As of 2015, 66% of the US owner-occupied housing stock was built before 1980, with around 38% built before 1970, according to the National Association of Home Builders (NAHB). Many of these homes are going to need repairs, renovations, or updates.
There are many renovation and repair loan options available, but we will focus on three: Conventional, FHA, and VA renovation. If you are looking for financial assistance for projects or you’re considering purchasing a home that needs a little TLC, here are a few loan programs for home remodeling.
The FHA 203(K) renovation loan allows a qualified borrower to purchase or refinance a home and finance the cost of renovations/repairs into the overall final loan. (Not to exceed 110% of the after-improved value of the home). The repairs allowed on a 203(K) are not restricted to FHA required repairs that would be deemed necessary by a consultant and/or appraiser but can include a “wish list” of items such as:
- Modernization and improvements to the home’s function
- Structural alterations and reconstruction
- Elimination of health and safety hazards
- Reconditioning or replacing of plumbing; installing a well and/or septic system
- Adding or replacing roofing, gutters, and downspouts
- Adding or replacing floors and/or floor treatments
- Major landscape work and site improvements
- Enhancing accessibility for a disabled person
- Changes that improve appearance and eliminate obsolescence
Luxury items such as installation of a pool, BBQ pit, or even a hot tub are not allowed.
FHA offers two versions of the 203k program, Limited 203(K) and Standard/Full 203(K). All work must be completed within 180 days of closing.
Limited 203(K)
This program allows the borrower to finance into the loan limited/non- comprehensive repairs:
- repairs that are not structural in nature,
- do not require plans, and
- cost less than $35,000 in total renovation costs including miscellaneous fees*
Main Street Home Loans requires a minimum of $3,500 in repairs for this program. A HUD consultant is not required to perform an inspection of the property on this type of renovation program but may be used.
Work cannot displace the borrower from the home for more than 15 days. If the house will be vacant for longer than 15 days, the Standard 203(k) must be used. The Limited program allows a disbursement at closing up to 50% of the estimated materials and labor costs before beginning construction but only when the contractor is not willing or able to defer receipt of payment until completion of the work, or the payment represents the cost of materials incurred prior to construction.
Standard/Full 203(K)
The Standard/Full 203(K) program allows the borrower to finance in many more items than the limited program. Repairs with this type of 203(K) can include structural alterations, conversions from 1 to 4 units, work that requires plans, and many more. A HUD-approved consultant is required. The borrower must meet with the consultant to determine not only the mandatory items but any “wish list” items that are to be included in the cost of repairs.
With the Standard program, the borrower can be displaced from the home for up to 6 months. Mortgage payments can be financed into the loan for the time that the house is deemed uninhabitable during the renovation period. The HUD consultant will deem the number months that can be financed into the loan. Please inquire as to the availability of financing in mortgage payments with your 203K specialist.
The Fannie Mae HomeStyle® Renovation loan allows a qualified borrower to purchase or refinance a home and finance the cost of renovations/repairs into one final loan. (The total renovation cost cannot exceed 75% of the after completed value of the home based on the appraisal or the total acquisition cost, whichever is less). The sales price plus the total cost of renovations is considered the total acquisition cost. All repairs must be completed within 180 days of closing.
Limited HomeStyle®
This program allows the borrower to finance into the loan limited/non-comprehensive repairs:
- repairs that are not structural in nature,
- do not require plans, and
- cost less than $35,000 in total renovation costs including miscellaneous fees*
Main Street Home Loans requires a minimum of $3,500 in repairs for this program. A HUD consultant is not required to perform an inspection of the property on this type of renovation program but may be used.
Standard/Full HomeStyle®
The Standard/Full HomeStyle® program allows the borrower to finance any type of repair including structural alterations and repairs, additions, work that requires architectural plans, and much more. The borrower must meet with a HUD consultant to determine the repairs to be included into the loan.
Up to 6 months mortgage payments can be financed into the loan for the time that the HUD consultant deems the house uninhabitable during the renovation period. Please inquire about the availability of mortgage payment financing with your renovation specialist.
The VA renovation loan is a great option for Veterans who may be buying a home that needs a little work, or perhaps they want to do some modernization to their current home.
This program allows the borrower to finance into the loan limited/non-comprehensive repairs:
- cost less than $35,000 in total renovation costs including miscellaneous fees*
- repairs that are not structural in nature,
- do not require plans, and
- work must be completed within 30-45 days
Every home is unique and will require varying repairs and updates. But with these mortgage loan options, your dream of updating your home or becoming a homeowner are possible!
You can also keep in mind the possibility of building your home from the ground up as there are many construction loan options available as well.
If you have any questions about renovation loans or want more information about the homebuying process, contact one of our licensed Mortgage Loan Originators. If you are ready to begin the process, click here to get started!
*Total renovations must not exceed $35,000; this is inclusive of repair amount, contingency of 10-15%, inspection fees, title update, permits and renovation fee.
These blogs are for informational purposes only. Make sure you understand the features associated with the loan program you choose, and that it meets your unique financial needs. Subject to Debt-to-Income and Underwriting requirements. This is not a credit decision or a commitment to lend. Eligibility is subject to completion of an application and verification of home ownership, occupancy, title, income, employment, credit, home value, collateral, and underwriting requirements. Not all programs are available in all areas. Offers may vary and are subject to change at any time without notice. Should you have any questions about the information provided, please contact us.