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09.26.19

Everything You Need To Know About Financing A Fixer Upper

Finding a beautiful home in the perfect neighborhood is every first-time home buyer’s goal. However, sometimes your dream home needs a little TLC. Wondering how Summit Mortgage can help you with purchasing and financing such a house? Read on, and then  Find a loan officer today who can help you apply for a renovation loan.

The Benefits for First-Time Homebuyers

The housing market is growing increasingly competitive. Prices are on the rise in most areas, and as a first-time homebuyer, you may find yourself in a difficult position of being outpaced.

Fortunately, that’s where renovation mortgage loans come into play. With renovation financing, you can obtain the funds needed to purchase your first (or second) home, and also make all the necessary renovations.  With this in-depth review from Summit Mortgage, you’ll understand everything about financing your fixer-upper today.

The Benefits of a Fixer Upper

Why do some buyers avoid homes in need of renovation during their search? In many cases, it’s because they’re not sure that they can balance the cost of purchasing a home and making the necessary repairs.

A fixer-upper can save you weeks (or months) in your home search as you find the right property. Recent research from the National Association of Realtors revealed that 56% of all homebuyers from every demographic commented that finding the right property was the hardest part of buying a home. Avoiding homes that require renovations could make your house hunt considerably harder.

Obtaining a renovation mortgage  There are several reasons to consider a home that requires renovations. Such homes usually have structural concerns or need serious remodeling, including:

  • Getting a larger home
  • Finding a home in a desirable neighborhood
  • Ensuring that you and your family won’t outgrow a starter home in just a few years
  • Creating the home of your dreams without investing in new construction
  • Bringing modern amenities to the character and vintage beauty of an older property

With all these benefits in mind, it’s easy to see why financing a fixer-upper with a renovation home loan is an ideal choice for many buyers. Not sure how much you can afford for a home and renovations? Our mortgage payment calculator can estimate costs to help you budget.

Top Fixer Upper Loans

There are several home loans to consider when exploring the possibility of renovating a home at the time of purchase. In general, these loans include specific provisions for the cost of renovations, when repairs must be completed, and who can complete them. Your loan agreement stipulates how contractors are paid, typically from an escrow account, and how often payments are disbursed. Connect with a Summit Mortgage loan officer to learn more about the specifics of each program and which is best for you.

Some of the most common fixer-upper loans include:

FHA Standard 203(k) Rehabilitation Mortgage

This renovation loan program is well-known among first-time or second-time homebuyers interested in older properties. Loans include financing for both the purchase of the property and the necessary repairs, allowing you to make essential upgrades immediately after closing.

The most significant benefit of this program is its flexibility. Property owners can make both minor and major repairs, as well as cosmetic improvements. However, it’s important to keep in mind that these loans are only available to buyers financing a minimum of $5,000 in renovations. Other requirements include:

  • Limited to one- or two-unit primary residences.
  • Renovation work must begin within 30 days of your agreement
  • All work must be completed within six months of closing
  • Your appraisal report must include an “as-completed” appraisal value that reflects the property’s value after renovations are complete
  • Funds may not be used for luxury items
  • A licensed general contractor must complete work

The FHA 203(k) Mortgage also addresses another big reason potential buyers might avoid fixer-uppers: where to live during the renovation work. The six-month maximum period requirement ensures work is completed quickly, and borrowers may include funds for housing expenses to live elsewhere during this time. For current homeowners, the program can also be used to refinance an existing property and complete renovations.

Fannie Mae HomeStyle® Renovation Mortgage

Just like the FHA 203(k) Mortgage, a Fannie Mae HomeStyle® Renovation Mortgage allows borrowers to purchase a home in need of repairs or to refinance their current property (and include the funds needed for renovation. However, a few essential distinctions make this loan more attractive in some cases.

For example, the program allows luxury upgrades to your property. There’s also no minimum for repairs, so it’s an excellent choice for property owners who need to tackle smaller projects but lack the cash flow to do so without financing.

Additionally, loan costs can be approved up to the lesser of 75% of the purchase price plus the expense of repairs or the “as-completed” appraisal value depending on your needs and preferences. Requirements for this program include:

  • A credit score of 620 or higher
  • Available for one- to four-unit primary residences, one-unit second homes, and one-unit investment properties.

After closing, homeowners will have 12 months to complete all required repairs. For DIY enthusiasts, some funds are available for renovations completed by the homeowner. In other cases, licensed contractors are required.

VA Renovation Loans

Available for eligible active-duty U.S. service members, veterans, and surviving spouses, VA Renovation Loans offer all the great benefits that make other VA loans so appealing, while making financing a fixer-upper easy.

VA Renovation Loans are not available for large-scale renovation projects; however, they are perfect for smaller upgrades for safety, convenience, and cosmetic improvements. They are available with no down payment and no minimum amount. However, some requirements apply, including:

  • A credit score of 620 or higher
  • All work must be completed within four months after closing
  • Homeowners may hire only one general contractor, who must register with the VA and carry appropriate general liability insurance

While these loans are incredibly flexible, they are not available for cash-out refinancing.

Learn More About Purchase and Renovation Loans

Financing a fixer-upper can make the difference between compromising on your purchase and choosing a home you’re sure to cherish for years to come. If you’re interested in renovation, Summit Mortgage can help you find a loan officer in your area who can guide you through the purchase and renovation process with expert advice. Request a rate quote for additional information, or apply for a loan now to get started.

 

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