Homes aren’t usually one-size-fits-all. Even when you find your dream house, you must complete a few odd jobs to make the space absolutely perfect for you and your family. Plus, renovations typically add value to your home, increasing its price if you decide to sell. Though renovating often feels inconvenient and time-consuming, it is a smart practice for all homeowners looking to increase their equity.
Even better, some homeowners can obtain funding from banks to repair and update their homes. Lenders offer various loan options to help you achieve the home of your dreams, so it is important to understand your selection thoroughly before you knock down any walls.
When you are just about ready to buy a home, but you know the house could use a few cosmetic updates to make it fit your dream, you need an EZ Conventional loan (or EZ C, for short). EZ Cs allow you to roll your mortgage and renovation loan into a single account, which makes for a simple repayment process.
By necessity, you must apply for this type of renovation loan before you sign papers acquiring your new home; you should have a list of necessary updates, compiled by you or an appraiser, to inform your lender of renovation-related costs. You and your lender agree on a contractor, and the lender pays the costs directly. The primary limitation on EZ Cs is the type of update: You can make only non-structural, cosmetic changes to the home. Therefore, any changes that require knocking down walls will need a different loan.
Many young homebuyers dream of transforming a fixer-upper into a personalized paradise. The primary reason the dream is so widespread is the misconception that renovating a house is cheaper than buying a turnkey option – but that isn’t always true. On a dime, a fixer-upper can turn into a money pit, so it is better to use a renovation loan than sink untold amounts of savings into refurbishing an older home.
If you plan on making significant renovations, the FHA 203k loan is the best option for you. There are a few different options to suit your remodeling needs, including:
- 203k Full: best for older properties that require structural updates; boasts low down payments, low refinancing interest rates, and fewer costs.
- 203k Streamline: appropriate for homes with cosmetic damage; limits repairs to $35,000, but can be acquired much faster than full loans.
Providing a comfortable middle between the extremes of most renovation home loans – i.e., minor cosmetic updates and significant remodeling – HomeStyle loans can be used for changes that will add value to your home and alter it to suit your needs and wants. Most HomeStyle borrowers use an appraiser to determine what changes will be most beneficial, and lenders use these suggestions to determine potential costs.
The primary limitation on these renovation loans is that all changes must be attached to the property. Therefore, you cannot use your HomeStyle loan to purchase appliances, like refrigerators, dishwashers, and stoves – unless your renovation makes it so that the appliances cannot be removed when you leave.
HUD REO With Repair Escrow
Though few homebuyers know it, the Department of Housing and Urban Development (HUD) has a listing of homes available for purchase. These properties failed to sell during a foreclosure auction, so they are now available without liens and at prices well below market value – making them extremely attractive. However, many foreclosed homes also require extensive renovation – which is where the HUD REO with Repair Escrow loan comes in.
Dedicated to HUD REO listings that can claim the required number of repairs, these loans are not widely obtainable. Most HUD REO properties meet or exceed HUD’s standards for living spaces, but those that don’t are eligible for repair escrow accounts. If you are considering purchasing one of HUD’s REO options, you should consult with a real estate agent or lawyer to determine your fitness for this loan program.
A jumbo home loan is one used to acquire large, luxury homes valued over about $417,000. If you want to buy an expensive home, but you also want to complete costly renovations, you also need a jumbo renovation loan. This loan option gives you up to $250,000 to make structural and cosmetic repairs to your home, but you can only obtain it when your home’s value is already immense.
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