3 Renovation Loan Types to Know About
Last month in the newsletter, I told you all about the construction loans my team offers. Those loans are still really popular as people move and rebuild after Hurricane Ian, but lately, demand for another type of loan has gone through the roof: renovation loans!
I’ve gotten so much interest in these loans I decided to do a webinar with my friend, Matt Schoedinger, breaking down all of the details. It’s up and running on YouTube, but if you missed it, here are the highlights.
Why would you want a renovation loan?Renovation loans work well for current homeowners or home buyers. If you already own your home, you can use the loan for a home improvement project (think a kitchen renovation or adding another bathroom). If you’re buying, you can use the extra money to get your fixer-upper move-in ready. Renovation loans can cover necessities or luxuries, depending on the loan type you choose. There’s only one caveat: The borrower can’t do the repair work on their own—they need to work with a contractor.
What does a renovation loan do for you?If you’re the borrower, a renovation loan enables you to refinance or purchase a home and close on it as-is, regardless of its current condition. If you're a Realtor, it’s a great deal for you, too, because it lets you sell dent-and-scratch homes more easily. All you have to do is set your buyer up with the loan and connect them with an approved contractor up front.
What are the three main types of renovation loans?
1. VA Renovation
This is an awesome renovation loan for veterans. It includes 100% financing as long as the vet has a minimum FICO score of 650. The buyer can also use the loan to purchase a property with as many as four units, as long as they live in one of them! The loan will cover the purchase price plus the total cost of the renovation or the “as-completed” value.
There are only a few rules for this loan type: You can’t buy a manufactured home or a historical property, your repair can’t be structural (for example, moving a wall) or a luxury, and you have to keep your repair amount under $75,000.
2. FHA 203K
This loan type is very similar to the VA loan, except it allows a slightly lower credit score (640), and the buyer isn’t allowed to use non-occupant co-borrowers.There are also two types of FHA 203K renovation loans: the “streamlined” loan and the “full” renovation loan.
The streamlined loan option covers repairs up to $35,000 and doesn’t offer the option for structural repairs. The full renovation covers up to $75,000. Structural repairs are allowed, but you need a U.S. Department of Housing and Urban Development (HUD) consultant to complete the loan. For each option, the overall limit of the loan varies depending on the county where you live.
3. Fannie Mae HomeStyle
Last but not least, we offer Fannie Mae HomeStyle renovation loans, aka conventional rehabilitation loans. This is the most common type of renovation loan, and people love it because of its flexibility. There are a few more rules upfront—the borrower needs to have a 680 credit score, for example, and the loan is only good for one-unit properties—but once you jump through those hoops, you can use the loan for any type of home except for manufactured homes and condos. You can even renovate or add an accessory dwelling unit!
Luxury renovations are allowed, too. You can do just about anything you want except a full tear-down or new construction. You don’t need a HUD consultant, and the repair amount isn’t capped. The loan maxes out at 75% of the as-completed value.If you want to learn more about these loan types, you can check out our “Renovation Loan Webinar” on the Tim Hart Loan Officer YouTube channel.