These loans help homeowners complete renovations with a loan amount that is based on an appraiser's estimate of what the property value will be with completed improvements. This is also an option for aspiring homeowners who purchase properties that need repair. Whether a home purchase or a refinance, this option finances the renovations and mortgage in one loan.
Your bank may not be the best source for what color to paint your room or which walls to move, but it can help you identify your financial options. Each option has its associated benefits and considerations, and your bank can provide valuable information to help you make informed decisions about which options are right for you.
As you prepare for your renovation, it’s important to review your financing options based on the size of the project, your intended repayment plan and whether you plan to use a contractor or do it yourself. Some financing options to consider:
The 203k loan insured by the FHA is designed to make financing for properties in disrepair more accessible by combining the estimated costs of repairs and the home's purchase price in a single loan. Suggesting this option to buyers may help them see the possibilities in a property and lead to a sale.
The FHA 203k loan program offers a number of advantages:
- Unsafe homes can be made inhabitable, improving the neighborhood.
- Buyers are able to get more house for the money and cover improvement costs.
- The square footage of homes can be increased at a lower cost.
- Agents can offer a greater inventory and close more sales.
There are two types of 203k loans: a streamlined program for properties that won't need structural repairs, and a traditional loan for properties that do need structural work. Most types of home improvements are covered with the exception of "luxury" features such as swimming pools.
As a real estate professional, if you choose to market homes that may be eligible for 203k financing, consider involving a general contractor in addition to an experienced mortgage professional, who have experience meeting the loans' unique requirements.