Part 3 – Rationale:
Have you looked at a home in a neighborhood you love, that has the perfect layout, or the spacious yard you’ve been wanting? But it needs updates or major repairs, and you’re not sure you can afford to make those changes after you buy.
You might even be living in a home you love that needs repairs because of a natural disaster or a few updates to accommodate your growing family. But the high interest rate for a home equity line of credit or second mortgage puts renovation costs out of reach.
Well, you’re not alone. A number of homebuyers and owners can see a home’s potential but aren’t sure how to pay for the renovations. HomeStyle Renovation mortgage could be the solution.
With a HomeStyle Renovation loan, eligible homebuyers and owners can renovate a home to fit their needs and personal style with just one loan that covers the mortgage and improvements.
How Does It Work?
When you buy or refinance a home, HomeStyle Renovation allows you to finance improvements for up to 75% of the property’s as-completed value. (That’s the appraised value of the home once the upgrades are completed).
This type of financing can be a more cost-effective way to renovate your home, since it combines the cost of the home and renovations into one conventional mortgage. It also addresses some common financial challenges with purchasing or renovating a home by offering:
- If you’re a first-time homebuyer or combining HomeStyle Renovation with a HomeReady mortgage, your down payment can be as low as 3%.
- You can also take advantage of cancellable mortgage insurance and today’s competitive interest rates, which may be lower than a home equity line of credit or personal loan.
- HomeStyle Renovation can be used for any renovation project such as updates to an older home, extensive design improvements, and even to construct or renovate additional living spaces like in-law suites and basement apartments.
- You can also benefit from upfront draws (this is how contractors get paid for things like permits and architect’s fees) that could help your projects start sooner without you having to spend out-of-pocket.
- Renovation funds get bundled into your mortgage under one loan, so you only make one monthly payment.
It’s also important to mention that the renovations you’ll make have the potential to create equity in your home right away.
Just like the FHA loan, the 203(k) consultant is also charged with overseeing the HomeStyle Renovation loan, which are initially placed in an escrow account. Your consultant can sign off on when these funds are released to contractors and service providers working on your project.
In my next blog, I will go into details on the differences between FHA and Fannie Mae renovation loan.