Find 100 homeowners and ask them how they'd pay for renovation or repair work on their homes, and you'll likely get one of two answers: they'd use their own cash (checking, savings, or retirement account) or credit, or they'd take out a second mortgage (home equity line of credit [HELOC] or regular, fixed second mortgage). The interest rate on
There is a third option very few people are aware of: the Renovation Loan. Renovation loans come in two varieties: conventional (Fannie Mae's HomeStyle) and FHA (203[k]). While there are some differences between the conventional and FHA renovation loan programs, they both provide homebuyers and homeowners the same underlying benefits1:
- Purchase money and refinance transactions
- On a purchase, the costs associated with acquiring AND RENOVATING the property are done with one, regular
first-trustmortgage. No HELOC or second mortgage, so the money is borrowed at prevailing interest rates for regular (first-trust) mortgages.
- HomeStyle renovation loans can be used for owner-occupied, second home, AND one-unit non-owner-occupied (investment) properties.
- In many cases, Loan-to-Value (LTV) ratios can be based on the after-improved value of the property, allowing for higher loan amounts (subject to program limits)
- The conventional HomeStyle program allows for other "luxury items" such as pools/spas, tennis courts, outdoor kitchens, and fireplaces.
1 As with any loan program, there are substantial differences between the HomeStyle and FHA 203(k) programs, each with conditions and limitations. To find out if your situation qualifies for a renovation loan, or for help determining whether or not a renovation loan is right for you, consult an experienced mortgage professional. Give us a call today!
Fill out our Quick Quote on the right and one of our specialists will contact you. No credit check needed.