Turn a property into your dream home
Renovation loans are available to help borrowers purchase (or refinance) and renovate a home.
There are three main renovation loans available to borrowers, including FHA 203(k) loans, the HomeStyle® Renovation Mortgage and the Freddie Mac Renovation Loan.
Read below and contact Contour Mortgage today to find out which one is right for you!
Key borrower benefits include:
- Qualified homebuyers can improve less-than-perfect homes in desirable locations or address property shortcomings immediately without draining your savings.
- Make the home your own—removing the previous owner’s style. Everyone has different tastes—you don’t have to live with the previous owner’s choices.
- Fix things the previous owner may have ignored—windows, roof repairs, etc.
- Get more house for the money. REOs and foreclosures are still a large part of the real estate inventory. Buyers can take advantage of reduced home prices.
- Rolling rehabilitation costs into the mortgage lets borrowers access to repair funds at lower rates.
203K Loan HomeStyle® Renovation Mortgage Freddie Mac Renovation Loan
There are three main renovation loans available to borrowers:
Customize your new or current property so it fits your personal style witha renovation loan insured by the Federal Housing Administration, or FHA.
There are two versions of 203(k) loans:
- 1. A 203(k) streamline is best for when repairs come to less than $31,500. This is best option for non-structural repairs, and may enable you to qualify for a loan amount up to $35,000 (requires a reserve fund for 10%). These non-structural repairs would be repairs such as new paint, carpets, appliances, kitchen or bathroom remodels, plumbing, electrical work, and/or HVAC or septic systems.
- 2. The standard 203(k), on the other hand, can cover up to $625,500 for the purchase price and repairs. The standard 203(k) covers major structural repairs, such as foundation repairs, fire damage and flood damage, and significant site improvements, such as room additions.
Both types of FHA-approved loans have low-down payment requirements, as well as more relaxed guidelines.
- The down payment could be as low as 3.5% of total amount of purchase plus costs of repairs.
- Gift funds are allowed.
- The seller may contribute 6% of purchase prices toward closing costs and pre-paids.
- The property should be used as a primary residence. Commercial properties are not eligible.
- The minimum renovation is $5,000.
HomeStyle® Renovation Mortgage
The HomeStyle Renovation Mortgage is offered by the Federal National Mortgage Association, which is also referred to as Fannie Mae or FNMA.
There are two ways you could utilize a HomeStyle Renovation Mortgage:
- 1. You can refinance and update your current home with the funds provided to you. For people who aren’t necessarily looking to move, but want to give their current residence a facelift, a HomeStyle Renovation Mortgage is a good option to consider.
- 2. You can purchase and make improvements to a property. Those who aren’t afraid to take on a fixer upper and see potential in a home that needs some work could also benefit from this type of renovation loan.
- The property must already be built—this loan is not for borrowers looking to work on a new construction. Further, borrowers purchasing a property with the intention of tearing it down and rebuilding do not qualify.
- One- to four-unit primary residences are eligible, as well as one-unit secondary residences or investment properties, including condos, co-ops and/or planned unit developments (PUDs). Manufactured homes (MHs) could also qualify.
- Renovations shouldn’t take more than one year. However, there are some expectations if a borrower asks his or her mortgage lender for an extension.
Freddie Mac Renovation Loan
The third renovation loan is offered by the Federal Home Loan Mortgage Corporation, or simply, Freddie Mac.
Those who aren’t afraid to take on a fixer upper and see potential in a home that needs some work could also benefit from this type of renovation loan. There is both a fixed-rate and an adjustable-rate option.
Similar to the previous loans, the Freddie Mac Renovation Loan could be used in two ways:
- 1. It could be utilized by homeowners who want to refinance and improve their current property. This enables borrowers to stay in the home they love, but have access to funds that will make the property even better.
- 2. It could be used by home buyers who want to purchase and restore a property. This is a great option for home buyers who can see past a home's flaws, however big or small, and are willing to go through the renovation process.
- The property must be a one- to four-unit home. Other types of residences, such as manufactured homes, are not covered. However, it doesn’t have to be a primary residence—second residences and investment properties may also qualify.
- Potential borrowers have to list the improvements modifications they would like to make to the home and present those modifications to a mortgage lender if they want to be considered.
- All of the updates to the home must be finished before the actual sale of the mortgage to Freddie Mac. It’s the mortgage lender’s responsibility to prove the project is done.
Not sure which option is right for you?
We’d be happy to help.