• Tel: (651) 252-1342
    Email: loans@firsttimehomebuyer-mn.com
    NMLS 274132

  • Renovation Loans

  • Renovation loans allow home buyers to not only get financing for the home purchase, but to also get funds needed to fix up a home that may be a diamond in the rough.

    There are two major programs when buying a home that needs renovation.

    • FHA 203k
    • HomeStyle Renovation (Fannie Mae)

    Both of these loans work in a similar fashion, and we offer them here at FirstTimeHomeBuyer-MN.com.

  • How Do Renovation Loans Work?

    Basically you find a home needing repairs. You should before signing any purchase agreement, get a contractor bid to determine the cost of the repairs. Once you know the costs, you can decide if the purchase and repair of this home makes sense.

    Assuming it does, adding the purchase price of the loan, plus the repairs together will equal your loan starting point. Your down payment will be based off the starting point.

    For example, you find a home for $150,000. The repairs are $50,000.  Your down payment requirements would be based off $200,000. On an FHA 203k loan, your down payment would be $7,000. (3.5% of $200,000).

    Most program, YOU are not allowed to do any of the work.  It must all by done by licensed contractors.

  • FHA 203(k):

    This government-backed loan is similar to HomeStyle®, but it’s open to buyers with lower credit scores.

    This is usually the more expensive option of the two because FHA mortgages have higher mortgage insurance premiums for borrowers who apply with smaller down payments. These mortgages have an upfront fee that's included in the overall principal of the loan.
    FHA 203(k) loans are divided into full and streamline options, and the type you need will depend on the state of your property.

    The FHA 203(k) Full Loan is intended for a primary residence that needs serious or significant repairs, while the Streamline Loan is used to cover minor repairs totaling less than $35,000.

  • Fannie Mae HomeStyle ®

    The Fannie Mae HomeStyle ® loan is a single-close loan that includes the cost of home repairs in the overall loan amount. This loan can be used for repairs that an appraiser requires, or for changes the homeowner wants to make, and it can be used to pay for both structural and cosmetic repairs.
    This loan appeals to bor

    rowers because they only have to deal with one loan, one monthly payment and lower interest rates that cover both the purchase price and the cost of repairs. You can select either a 15- o r 30-year mortgage term, along with adjustable-rate options. With a HomeStyle® mortgage, your final loan amount is based on the projected value of the home after the repairs are completed. Fannie Mae’s HomeStyle ® loan is a sound choice for a buyer with top-notch credit who has access to competitive interest rates.

  • When Should You Consider a 203k Loan?

    203k loans and HomeStyle renovation loans are great loans for the right person on the right property. They are not perfect for everyone just because you found a fixer-upper.

    You should only consider one of these loans if you're confident that the project will either reduce your long-term costs of home ownership, or increase the value of your property.

    Some home renovation projects can increase your property value by a greater amount than what you spend on renovations. Additional rooms, new kitchens, fixing up damaged foreclosures, etc.  Other homes have needed repairs that don't necessarily improve the homes value. 

    It's worthwhile to look into home renovation loans if a repair will save you money in the long run, or make your home a safer place. Projects in these categories include roof repairs, new siding and updated windows to keep your home weatherproof and energy-efficient.

    One of the most important steps in deciding on a home renovation loan is knowing the risks and what to watch out for. First of all, check your equity. There’s a bigger risk of defaulting on a renovation loan when you have less money invested in your home.

    Another mistake is investing too much in your remodeling. You don’t want to over improve the house compared compared to similar properties in your neighborhood. Be aware of the upper range of home sale prices in your area, or you could find that you've actually damaged the marketability of your home by pushing it past the price of neighborhood homes. You never want to be the most expensive home on the block.

    Finally, don’t rush to renovate. This isn't for everyone. Be sure to understand the whole process of renovation loans, and remember that remodels often end up being more expensive and time-consuming than you might originally assume.

  • Other Rehab / Repair Options

    Smaller projects should never be done with a 203k or Homestyle renovation loan if at all possible.

    Many homes have mandatory items that must be repaired in order to buy the home. Others items may be a 'want' item. For example, a home with no functioning bathroom is a needed item. But a home with dirty ugly carpet, or a bright orange 1973 counter top, don't need to be repaired to buy the home. Not all projects need to be done immediately either.  Owning a home means you probably always have something going on. New carpet this year, repainting next year, new furnace the next year, etc.

    It is common for people to self-fund these project with credit cards, and pay over time. This is a easy option, especially if you can pay down the credit card relatively fast.

    Others fund with credit cards, and when the home is finished, do a cash-out refinance, which involves refinancing your current mortgage at a higher loan amount and using the extra off the credit card. This choice might make sense if you have at least 20% equity in the home, a good credit score and low interest rate options available in the market. 

    A very small number of banks and credit unions will give you a home equity loan after you become the owner based off future repaired value, while standard (HELOC) Home Equity Line of Credit loans only give loans based off current value.