What Is a Renovation Loan?
When using a renovation mortgage loan to purchase a new home, Fairway will combine the amount of the purchase contract and the necessary repairs and improvements to calculate your adjusted sales price. You can also use a renovation loan to refinance your existing mortgage and finance the costs of your desired repairs and improvements into the new home loan.
If the house is uninhabitable while being renovated, you can finance up to six months of your mortgage payment into the loan to alleviate you and your family from having to make two payments at the same time.
Eligible repairs and upgrades may vary from loan program to loan program, so be sure to ask your Fairway mortgage advisor about all your options when discussing the specific details of your project.
Renovation Loan Highlights
When shopping for a home, you may come across properties that aren’t quite what you’re looking for but have the potential to be your dream home with some repairs or renovations. With a renovation loan, you can roll the cost of financing or refinancing a home and repairs into one loan – saving you time and money.
HomeStyle Renovation Loan
Limited 203(k) Rehabilitation Mortgage
Standard 203(k) Rehabilitation Mortgage
Renovation Loan FAQs:
How Does a renovation loan work?
Renovation mortgage loans allow homebuyers and homeowners to borrow against the home’s subject-to-completion value today, rather than the value of the home in its current condition. The home’s subject-to-completion value takes into account the value added after repairs and improvements have been completed.
For example, if the Jones family found a home in their ideal location listed for sale at $250,000, they could opt for a traditional home loan to finance the purchase of the property. While the Jones family may have enough money for a decent sized down payment, they may not have the funds needed to pay for desired upgrades or repairs out of pocket at this time. This is precisely where the benefits of a renovation mortgage come into play.
Using a renovation loan at the time of purchase, the Joneses can not only finance the purchase price of the property, but the costs of the necessary repairs and home improvements as well.So if the home needed $50,000 of upgrades in the bathrooms, the Joneses could roll all $300,000 of the home’s price, plus the project price into one home loan.
Minimum down payment requirements vary from loan program to loan program, of course. But imagine the savings (in both cash and in headaches) of being able to finance 95-97% of the total$300,000 loan amount it would take to turn this home the Joneses are considering into their dream home.
Renovation mortgage loans are also a great way to upgrade your home at the time of refinance, rather than at the time of purchase. This is especially true if the home’s current value — before repairs — is significantly limiting the amount you might be able to borrow in a refinance.
Are renovation mortgage loans a good idea?
If the home you are living in or the home you are looking at for purchase needs repairs, or if you simply have a wish-list of upgrades that you would like to make, a renovation mortgage might be right for you. Keep in mind that since renovation costs are being financed into your home loan along with the mortgage amount, this could result in a higher monthly mortgage payment than other mortgage loan options.
At Fairway, your renovation loan will take the form of a fixed-rate mortgage, which protects you from rising interest rates in the future. Remember, though, that renovation mortgage programs will differ in terms of their down-payment requirements and types of eligible repairs, so speak with your Fairway mortgage advisor about all your options today!
