For many homebuyers, a picture-perfect, move-in ready home is the dream. For others, a project house they can get for a discount and then put their personal stamp on is too good to pass up. The problem with many of these project houses, though: coming up with the money to complete the projects.nbsp;
One youre depleted your savings to gather the funds for your down payment and closing costs, there may not be much left over to knock down that wall between the kitchen and living room, redo the counters and cabinets, and put in new hardwood flooring. Add in the costs of new furniture and hiring movers, and it could be years before youre finally ready to make those improvements.nbsp;
This is where a home renovation loan can help.nbsp;
What is a home renovation loan?
Although they are growing in popularity, home renovation loans are not anywhere near as prevalent as FHA loans for first-time buyers. According to thenbsp;Mortgagenbsp;Bankers Association MBA,nbsp;first-time home buyersnbsp;account for more than 75nbsp;percentnbsp;ofnbsp;FHA homenbsp;purchases, said FHA Handbook.nbsp;
But maybe they should be.
After all, a home renovation loan can scratch a few different itches:
1. It feeds into that tempting renovation craze, offering an opportunity to redo a home with funds that are tied into your loan.nbsp;
2. It allows buyers who cant afford a move-in home, or who are making offers and losing out on those homes, to purchase something that is likely more affordable.
3. It gives buyers a chance to build equity quickly.
Heres how it works. Renovation loans bundle funds for the home purchase and renovation. There are a few different options from which to choose. Here are the most popular:
Fannie Maesnbsp;Home>
The Fannie Mae Home>
FHA 203kSimilar to the Home>
There are two different FHA 203k loan options:
Full LoanThe Full Loan is intended for a primary residence that needs serious or significant repairs.
Streamline LoanThis can be used for smaller repairs and caps out at 35,000.
FHAs 203k loan requires a minimum credit score of 500 with a down payment of at least 10; a credit score of 580 or higher allows a down payment of 3.5, said MarketWatch. These loans cant be used for work that the FHA deems a luxury, such as installing a swimming pool.
