The purchase of a home with a Renovation Loan allows the homeowner to add a budget for renovation costs to the purchase price of the home. After closing, the funds are used to complete planned improvements to the home. This is perfect in today’s market where many homes are aging, missing appliances or do not fit your family’s needs or taste.
Most of the time homes with termite damage or needing repair are not eligible for purchase with FHA or Conventional loans because of their condition. Sellers are forced to either repair the home prior to sale or take the cash offer from a home “flipper”. A Renovation Loan can be a perfect alternative!
A Renovation Loan from Signet Mortgage allows you to purchase the home (seller is now out of the picture) and includes a budget for costs to repair, renovate and customize your new home.
- Loan amounts up to 96.5% of the improved value of the home
- Estimates for the work to be completed must be obtained and approved as part of the loan process prior to closing
- Work must be completed within 6 months
- Renovation budget must include a 10%-20% contingency reserve depending on the type of work
My favorite is the HomeStyle loan from Fannie Mae. Loan to value can be up to 95% and although any loan over 80% loan to value will have mortgage insurance – it avoids the up front mortgage insurance with an FHA loan. Credit standards and underwriting are a bit more stringent.
There are two types of FHA 203k renovation loans which can be more flexible in underwriting. A “streamline” where the cost of repairs is less than $35,000 and Full where the loan limit is designated by the County.
The downside is cost of a 203k renovation loan includes costs associated with any FHA loan:
- For the FHA loans – upfront mortgage Insurance of 1.75% (can be added to loan amount above the County limits)
- Monthly mortgage insurance 0.85% for FHA loans
- Conventional loans will not have upfront mortgage insurance
Additional costs include inspection fees, appraisals, title inspection, etc.