Home Renovation & Repair Loans
A renovation or repair job on a home is no small task. Homeowners can consider a rehab loan or home renovation loan to gain the funds to set the wheels of change in motion. Fortunately, renovation financing has many options available, so you can be sure to find a solution perfect for your situation.
FHA Rehab Loan
The FHA rehab loan is an excellent choice for people who are buying a home with plans to rehab the loan. It allows them to finance the purchase of the house plush the costs of renovating or rehabbing the home. Alternatively, this particular rehab loan can be obtained for the purpose of renovating your existing home.
The official title of this loan is the FHA 203(k) loan and it is an ideal solution for buyers interested in fixing up the homes they are buying.
What’s the benefit of buying a fixer-upper home? There are actually quite a few, including those listed below:
- Allows buyers to buy into better neighborhoods by agreeing to put a little elbow grease into their efforts.
- Allows buyers to get more home for their dollars.
- May even allow buyers to purchase a home in a sought-after school district they would otherwise be unable to afford.
The bottom line is that buyers willing to consider a renovation mortgage have much to gain by doing so.
A Safer Kind of Loan
The FHA home renovation loan is popular because it allows borrowers to make the purchase with a down payment of only 3.5 percent. A conventional renovation loan requires a five percent down payment, but many lending institutions require a minimum of 20 percent down payment for this type of loan. Renovation loans through the FHA are still subject to standard FHA rehab loan requirements and limits.
That doesn’t mean the process is entirely without risks. Home buyers should make this move with their eyes wide open and understand that there are risks involved when renovating existing structures, including the risk of finding they’ve signed up for much more than they bargained for in the way of expense, labor, and time to complete the renovation process.
Conventional Rehab Loan
A conventional rehab loan is far more intensive than home remodel loans. Renovations dig down deep, below the surface, while most people consider remodeling as something that is largely cosmetic.
There are a variety of conventional renovation loan options for borrowers to consider, though, those who qualify might prefer the terms of an FHA home renovation loan when it comes to arranging renovation financing.
Conventional lenders do offer a better variety of terms, allowing borrowers to compare their rehab loan options to find the one that best meets their needs. Some of the options available include choices like:
- Short-term construction loans.
- Construction to permanent loans.
- Multiunit property fixer upper loans.
- Second home remodel loans.
- Investment property loans.
In other words, the rehab loan requirements are far more relaxed for conventional renovation loan opportunities than for an FHA loan. You can even get home addition loans when going through the conventional lending route for home remodel loans.
Why It’s Important to Look Before You Leap into a Rehab Loan
A rehab loan can be the best thing since sliced bread when it comes to getting you into a home that is in less than spectacular shape at the time of the purchase. Many homes need a little work to make them sparkle and shine like the castle you envision when you close your eyes.
That shimmer requires serious funds to make happen. It’s not only about what’s on the surface, after all, but you must repair problems lurking beneath the surface. The list of potential problems that aren’t always obvious in a standard home inspection can be quite long and includes things like the following:
- Repairing leaking pipes behind the walls.
- Updating wiring to meet modern code.
- Replacing rotted wood and structural material from previous problems.
- Leveling a home.
- Removing potentially harmful materials from the property (this includes things like asbestos and lead paint).
- Because a renovation mortgage does carry the risk for bigger than expected renovation projects, it’s important to get a thorough and detailed inspection from a trusted professional.
Home Addition Loans
Home addition loans are a little different than the standard rehab loan. The addition adds value to the home, but it is an addition to an existing structure and doesn’t require the same amount of effort and expense many renovation projects do. Some of the expenses that are often overlooked when calculating the costs of a rehab project when applying for a conventional renovation loan include the following costs:
- Debris removal costs.
- Hazardous materials disposal costs.
- Inspection fees.
- Costs of bringing home to current code.
- Costs of inexperience.
- Costs of hiring professionals.
- Costs of tools.
- Costs of materials.
- Historic preservation requirements and costs.
- Costs of unexpected damage, accidents during construction, and excessive zeal during a demo.
It is so easy to underestimate the total costs of renovations to a home – especially since you really won’t know how extensive the renovations must be until you’ve rolled up your sleeves to take a look behind the walls, beneath the floors, and in the attic spaces of the home.
There are no easy answers when it comes to acquiring the right amount of funds to cover your renovations costs and expenses. It’s a learning process for those who do it and some people who renovate and rehab homes professionally run into unexpected costs and insufficient calculations along the way.
Despite the risks, the opportunity to transform a diamond in the rough into the best home on the block is a tempting one indeed. The rewards of doing so involve providing a beautiful home you can be proud of when raising your family and building your dreams. Finding the right renovation, repair, or rehab loan to help you accomplish your goal can make all the difference in the world.
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