Renovation Mortgage Loans For Purchase and Refinance
This blog will cover and discuss renovation mortgage loans for purchase and refinance. Have you ever looked at a home and said, “I love the neighborhood, “ but the house is so outdated you would have to dump too much money into it that you don’t add it to your shortlist? You were probably not educated on the FHA 203K renovation mortgage loans.
FHA, VA, Conventional Renovation Mortgage Loans
In this blog, we will discuss the types of renovation mortgage loans available for homebuyers buying fixer-uppers. FHA, VA, and conventional mortgage renovation loans are now back on purchase and refinance transactions. Gustan Cho Associates has no lender overlays on renovation mortgage loans. The guidelines on FHA, VA, and conventional renovation mortgage loans are the same as the standard FHA, VA, and conventional loans.
Can a Mortgage Loan Be Used For Renovation?
One of the most frequently asked questions our team at Gustan Cho Associates gets is can a mortgage loan be used for renovations. Dale Elenteny, a regional managing director and senior loan officer at Gustan Cho Associates said the following about the newly launched updated FHA 203k Renovation loans.
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How Does 203k Renovation Mortgage Loans Work?
According to Christian Sorensen, Regional Wholesale Account Executive at Equity Prime Mortgage, an FHA 203K renovation mortgage loan gives you the ability to purchase a home in AS IS condition, update it and customize it to your liking, and have the renovations included in your FHA Loan. If you know the market you are looking into and do your research, this product could potentially provide you with instant equity in your new home! The FHA Loan is offered in either a “Streamline” or “K.” We will also discuss the difference between the two options.
The Mortgage Process on FHA 203k Renovation Mortgage Loans
With the 203K Renovation mortgage loans, you can take a home in AS-IS condition, customize it, modernize it, and update it. One loan, rate, and payment are all under FHA financing requirements. All work, optional and required, is completed after closing.
What Options of Renovation Mortgage Loans Do Borrowers Have?
The FHA 203K Loan is how you, as a consumer, can use it to your advantage!
What Is Structural Work On A House?
Structural work is remodeling or renovating load-bearing walls, roofs, foundations, supports, structural beams, columns, or any structure in the house. When applying for an FHA 203K Streamline loan, it will not allow you to perform structural repairs. The loan also has no minimum requirements in terms of cost for the renovations you are looking to perform. However, you are capped at a limit in renovations of Thirty-Five Thousand Dollars. It is also important to note that adding a pool in your backyard or enhancing the landscaping is prohibited.
Full FHA 203k versus Streamline 203k Renovation Mortgage Loans
The FHA 203K loan also prohibits structural work from being financed in the loan. A difference between the FHA 203K and the 203K Streamline is the FHA 203K loan has a minimum requirement of Five thousand dollars in renovations. The limit on an FHA 203K loan falls under the maximum amount for FHA loans. With this product, you must also include HUD Consultants in your project.
FHA 203k Streamline Renovation Mortgage Loans
With the limited 203K or Streamline product and not allowing structural remodeling, pools, or landscaping, the purchase contract will be AS IS. The most common types of renovations performed using this loan product include but are not limited to, updating kitchens and bathrooms and flooring. When updating your kitchen, remember that free-standing appliances are an acceptable expense.
HUD Guidelines on FHA 203k Renovation Mortgage Loans
Let’s recap some key factors when using a “standard” FHA 203K loan. First and foremost, a HUD consultant will be involved in the project. They will be the project manager and ensure no health or safety issues during the renovation. Specific renovation projects are not allowed, including all structural renovations and the addition of pools or landscaping. If the home you purchased already has a pool, you can work on it to ensure it is fully functional.
What Type of Homes Are Eligible For Renovation Mortgage Loans
And like the “limited” streamlined product, you can use funds from this loan for free-standing appliances. Both products have the same process in closing. When you sign the papers and take ownership of the house, you will receive the funds for the renovations. Single-family homes, properties with 2 – 4 units, and manufactured homes are all eligible under both products, and terms of 15 years, 30 years, and adjustable rate mortgages are available.
HUD Loan-To-Value Guidelines on FHA 203k Renovation Loans
HUD allows FHA 203k Loans loan to value cap at 110% loan-to-value cap on purchase and refinance transactions. For your sake, I hope you never were in a situation where the appraised value comes in under the purchase price and has to disappear. Whether you could not pay the difference as a down payment or the seller refused to lower the price, those situations tend to “kill” the deal, and you must restart the whole process over again. WHAT A PAIN!!!! A key option when using the FHA 203K loan is the 110% LTV after the completion of the renovations.
Who Hires The General Contractors and The Construction Crew on Renovation Mortgage Loans
Let’s look at an example of this work: Let’s pretend you wanted to buy a home for $500k and wanted to update the master bath, and that was going to cost $36k. The total of the 203K loan would be $536k. However, your original appraisal came in at $453,800. Your loan officer could request an estimate or bid from a licensed contractor and order a separate appraisal for the “After Completion Value.” The appraiser comes back with a new value after completion of $490,800. Multiply the new appraisal by 110% ($490,800 X 110%) = $539,880. You are eligible for the complete loan, including renovations!!
In conclusion, do not be afraid to ask your lender what option is best for you to achieve the result you are looking for. So many loan options are available to consumers; be sure to pick the right one. Asking the right questions and researching will help get you into the home of your dreams!
