Are you purchasing a fixer upper? If so, we’ve got good news for you! The Federal Housing Administration offers a home loan program specifically designed to help homebuyers with the cost of renovations and repairs.
What is a Renovation Loan?
With a renovation loan (Section 203(k) loan), you can include the cost of renovations and repairs in your mortgage, giving you the funds you need to get your new home ready for the move-in date. These loans are popular in areas with a lot of older homes as well as with buyers purchasing a foreclosure or short sale.
How Does It Work?
The 203(k) loan helps cash-strapped homeowners who either cannot or do not want to tap their home equity, or who cannot obtain financing elsewhere.
There are two types of 203(k) loans:
- Streamline 203(k): Cost of repairs or improvements is $35,000 or less
- Conventional 203(k): Available for jobs that cost more than $35,000
A 203(k) loan requires buyers to spend a minimum of $5,000 on renovating the home. Generally, the maximum mortgage amount depends on the borrower’s approval limit, the FHA maximum mortgage limit for the area, or 110% of the appraised value of the improved property.
203(k) loans offer homeowners an excellent option for renovations, but there are also some restrictions you should be aware of before you apply:
- Not available to investors. Owners and occupants can refinance or purchase with a 203(k) loan, but investors will not be approved.
- Timeframe limits: You must begin the renovations within 30 days after the closing and it must be completed within a six-month window.
- Contractor requirements: Be sure your contractor understands the pay schedule and requirements of the 203(k) loan. If you wish to do the repairs yourself, you must be qualified and meet specific FHA qualifications.
Ready to Apply?
Call Money Street Mortgage to find out whether a renovation loan is right for you. We will help you understand the terms of the loan and what options are available to you.