In the long run, most home improvement projects will always add resale value to a property. It’s just the dilemma of financing these projects that tends to hold homeowners back.
The reality in today’s day and age is the many homeowners can’t take on a large-scale property project without the help of a home renovation loan. Whether you choose to DIY your renovation or hire contractors, it’s not a cheap endeavor.
Here’s how home renovation loans can serve you.
Home Renovation Loan Options and Their Terms
Not all home renovation loans are created equal. What’s important to bear in mind is that most of these types of loans come in the form of mortgages. However, they offer the built-in coverage of home renovation costs too.
All home renovation loans have their own sets of terms and financing. The trick is to figure out what suits your budget best. Here are some of the most popular among homeowners today.
The Fannie Mae HomeStyle Loan
This type of home renovation loan is a single-close loan. This means that you sign one set of loan documents, and the loan covers all your renovation costs, start to finish.
In other words, this loan includes the cost of home repairs in the total loan amount. If you want to make repairs on your home, this is the perfect type of mortgage to apply for. Similarly, if you simply want to make a few cosmetic or structural repairs, this loan is good for that too.
The major draw of this loan is the fact that you only have to deal with one monthly payment, and a lower interest rate as a result. This loan covers the purchase price and cost of repairs on a home. You can also choose from a 15 or 30 year loan term.
The overall amount of your loan depends on what your home will be worth after renovations are complete.
The FHA 203(k) Loan
This is a great loan option if your credit score is on the lower end of the spectrum. The FHA 203K is a government-supported loan with similar terms to the HomeStyle loan.
However, it’s worth noting that an FHA mortgage loan does come with higher mortgage insurance premiums. This is usually because homeowners apply for the loan with a small down payment. You will also have to pay an upfront fee. This is a sum of money that you pay your mortgage lender as a consideration for drawing up the loan.
There are two primary FHA loans. The first is the full FHA 203K, which is a good option if your home needs serious work. The second is the streamlined loan, which is perfect for homes that only need smaller, cosmetic repairs.
The Jumbo Renovation Loan
This type of loan is ideal if you have a large, higher-priced home that you have your eye on (and what to make changes to). If the home loan amount exceeds a particular threshold (a conforming loan limit), it makes it a jumbo loan.
In essence, a jumbo renovation loan covers the cost of an expensive home, as well as the renovations you want to make, in one loan. There’s no need to take out multiple mortgages or make a larger down payment.
You can apply for this loan if you have large-scale repairs you need to do. Also, this loan comes in handy if you simply have your own renovation vision you’d like to bring to fruition.
The USDA Home Repair Loan
The U.S. Department of Agriculture offers a rural development program to homebuyers and homeowners. The overall goal of the program is to provide safe and secure housing in rural areas. You can use this type of loan for almost all types of home repairs or improvements that have to do with health and safety.
For example, if you need to repair your roof or windows, replace electrical components, fix a major plumbing issue, or even replace old and outdated appliances. Loan eligibility depends on your income (50 percent of the median average in your region) and your rural location.
Looking for Expert Mortgage Advice?
If you’re considering applying for a home renovation loan but can’t understand the best-suited loan terms for your needs, JTS & Co. can help.
As mortgage professionals with decades of experience, we can help you understand complicated loan terms and find the best loan to suit your budget. Get in touch with our team for the expertise you need.