When it comes to home renovations, whether a need or a want, it can be a confusing road to navigate when determining the best options to cover the costs and finding the right contractors to work with. Having some help with choosing the right path can alleviate stress and make the ability to sell or purchase a home that needs repairs or updates easier. Did you know, there are options to finance the repairs into your mortgage, eliminating the need for you to come up with the extra cash to make your dream home come true? Wouldn't that make purchasing a home needing some "love" or selling a home that needs updates that much easier?
Think of the possibilities:
Would you purchase that home you loved so much but hated the bathroom?
Would you be more likely to move forward on a home that you loved-in the perfect location but needed asbestos remediation, if you knew you could include the costs in your purchase loan?
Would you receive top dollar for your home if you made some adjustments before putting it on the market?
Well - if the answer is yes to any of these questions, there are several loan programs that can help get your renovation projects off the ground. These loans are specifically designed for purchasing a fixer-upper or to enable you to complete the necessary renovations/upgrades on a current residence.There are several important factors to consider when determining which of these loan programs is optimal for you. These include varying costs, guidelines of what improvements are allowed per program, the property and occupancy type, the required oversight of the project by the lender, and loan qualifying guidelines such as income requirements, credit scores, asset requirements, and much more. Rehab loans, whether purchasing or refinancing to obtain cash for improvements, are available through FHA, Fannie Mae, and Freddie Mac and can only be acquired through an approved mortgage lender or banker.
However, here at Corcoran Perry & Co., we have another fantastic option when needing funds for updates and/or repairs on a home you are preparing to sell. We are proud to offer the innovative and cutting-edge RealVitalize Program, which can be acquired through the support of a Corcoran Perry & Co. REALTOR.
For Buyers
When buying a home, people often spend most of their liquid assets on the down payment, closing costs, and the move itself. Traditionally, most people would wait until they can save additional money for those updates that would make their home more functional and efficient or a more beautiful place to call home. But in our current lending landscape, that is no longer necessary! What if you could buy the house and incorporate the remodeling costs when you close on your home so that you could have the work done immediately?
You can do just that with either an FHA 203K or a Conventional Rehab loan! The main benefit of these loans is that they allow you to live out your vision and buy a home needing repairs or updates. You could have the work completed right after closing rather than passing up an otherwise desirable home in the "right" location with great bones just because you would not have been able to afford those upgrades if you were using your own cash savings today.
So, with so many great options available, how do you know what to choose? Here are the options and note-worth points to consider when weighing the choices.
FHA 203K Loan
An FHA 203k loan is backed by HUD, a division of the federal government, and is available to buyers wanting to buy a structurally or cosmetically damaged or dated home and hire a contractor(s) to do the repairs on it. There are two types of 203K loans: limited (also known as Streamline) and standard.
Limited 203K, also known as the streamlined 203K, is for non-structural repairs or more simple projects that will not exceed the maximum dollar amount of 35K allowed on the Streamline. This could include projects such as painting, new flooring, or new appliances.
The standard 203K is for properties that need structural repairs, such as a new roof, structural remediation, a room addition, or a project that the costs will exceed the maximum 35K that are allowed. FHA has specific requirements for the types of projects you can obtain a loan for and can be used to cover projects that improve the home's functionality or attractiveness, eliminate health and safety hazards, structural upgrade or repairs, or ensure handicap accessibility. The program will not cover so-called "luxury" improvements such as adding an outdoor kitchen or a pool to the property. The FHA loan is only available for owner-occupied properties and does not allow for second homes or investment properties.
Here's how it works: Say you want to buy a home and update or repair the bathroom and kitchen. An FHA 203k loan would enable you to borrow enough money to cover the home purchase costs (or refinance), assuming the home qualifies, plus include the money to renovate those spaces. The maximum loan amount that can be funded does depend on a combination of the home's current value and the projected after-value once improvements are complete, and it cannot exceed the loan limit in your area. Discuss with your lender if you qualify and the amount you may be eligible for. If you need a recommendation, reach out to your trusted real estate advisor for a recommendation.
Although FHA 203(k) loans are a viable renovation solution, Conventional loan options like the Fannie Mae HomeStyle Renovation Mortgage and the Freddie Mac CHOICERenovation loan are sometimes a better solution.
Conventional Rehab Loan
Like the 203k loan, the Conventional Rehab Loan can be used for purchasing or refinancing, and there are two options available, depending on your needs and circumstances.These two options include the Fannie Mae Homestyle and the Freddie Mac CHOICERenovation loans, and they can be used to improve single-family homes, manufactured homes, condos, and 1-4 multi-unit dwellings. However, unlike the FHA 203K that can only be used on a primary residences, the Conventional options also allow for second homes and investment properties.
With both Conventional programs, you can perform all the same renovations as with the FHA 203k. Still, there are fewer limitations since this loan follows conventional guidelines, allowing for a broader range of general repairs and energy updates. Unlike the FHA 203K, they allow for landscaping, pools, and luxury upgrades. They also will provide funding for an Accessory Dwelling Unit (ADU), allowing the borrower to add the addition, providing more space for family or an opportunity for rental income. The Conventional option loans will lend between 80% to 97% of the purchase price plus improvements depending on the property and occupancy type - requiring as little as a 3% down payment for eligible borrowers.
For Sellers
RealVitalize
Our priority at Corcoran Perry & Co. is to get you top dollar for your home, which means offering solutions to our clients to accomplish just that. Through the RealVitalize program at our firm, you can make the necessary improvements to get your home in the best shape possible before entering the market. This program offers assistance by covering the upfront costs of the repairs and upgrades, and can then be repaid through the proceeds at the time of closing. RealVitalize will work tirelessly to find you the best contractors and provide a dedicated project consultant to guide you through the renovation.
Thoughts From A Lender
Michelle Oddo, Oddo Group Luminate Home Loans
As Corcoran Perry & Co.'s preferred lender, I am here to help guide you through the wide world of mortgage options. I am not just talking about a place to live but a place to thrive, dream, and grow. That's where renovation loans can come into play.
In my experience, the greatest aspect of these loans is that they don't just help you buy a house but also help you make that house your home, tailored to your taste and needs. That's what I love about the renovation loan. Whether it's the flexibility of the FHA 203k or the broader scope of the Conventional renovation loan, these financial tools have the power to transform houses into dream homes in an affordable way. It is always fun to see the before and after pictures of our client's projects and to see a homeowner's vision come to life while adding instant appreciation and value to their home!
There are other options that are not discussed above, like the Home Equity Line of Credit (HELOC), which has no restrictions on how you use the money, but these are currently at higher interest rates than a Renovation Loan and are based on current value versus being able to borrow against the future completed value of the home, therefore limiting the amount that you would be able to obtain for improvements.Remember, every option comes with its pros and cons!
It's all about finding the right fit for your situation, and that's where your REALTOR and I come in. We're here to help you weigh these options, to delve into the details, and guide you through this exciting journey. So, let's take this step together. Let's explore the options, evaluate the pros and cons, and transform a house into your dream home. Because remember, a home is not just about four walls and a roof; it's about building a future on your terms.
Socials