We realize that at the time this is posted, we’re seeing severe shortages of home inventory in most markets across the country. Homes are priced extremely high, and in the rare occasion that a well-priced, move in ready home hits the market, it’s often not long before multiple bids come in, driving that once reasonable price up through the roof (pun very much intended). So what are home buyers to do? First time buyers are often stuck between a rock and a foundation (enough with the housing puns?). Should they push their budget, getting into uncomfortable territory when it comes to monthly payment in order to get a decent home? Or should they rent, foregoing the financial benefits of home ownership for at least another year?
The problem with the former is no one should purchase a home only to be left unable to afford leaving home and enjoying life. Those who choose the latter are often left after another year of leasing staring at homes that have appreciated and are now just as seemingly out of reach as they were before. There’s good news for home buyers, though, and not just first time buyers!
Enter the renovation mortgage loan.
Is that a scary term to you? It shouldn’t be. For many consumers (and even loan officers), the renovation mortgage loan is a concept they know exists, but they don’t fully understand it. The reality is, the renovation loan is a lot easier to use than many people realize, and if more people understood the program, it would probably be one of the most sought after loans in the industry.
Why isn’t the renovation mortgage loan used? Mostly because of ignorance and misconceptions. For loan officers, they believe they’re difficult, tedious, and full of pitfalls. The reality is that the product does have a few extra steps and forms, but for one, there isn’t a renovation product that’s too difficult to get done if you know the guidelines and process. And for two, there are various types of renovation loans, and some of them are very easy and extremely beneficial for simple updates or smaller projects like updating kitchens, bathrooms, or appliances.
So what are the renovation mortgage options? Well, for conventional loans, MasonMac offers a renovation loan that is based mostly along the same guidelines as standard conventional loan guidelines. The amount that can be included in financing for renovations is based on the “as completed” value of the home, and can be done by home buyers looking to update a home OR by home owners refinancing to make improvements to their home. One of the easiest renovation loans to get falls under the conventional loan product suite – for borrowers who can accomplish their goals with funds not exceeding 15% of a homes ‘as completed’ value, they can get loan terms identical to non-renovation financing.
For FHA loans, there is the 203(k) streamline loan which offers options for repairs and renovations up to $35,000 and is a relatively simple loan process designed to help those with minor renovation or upgrading projects. FHA also offers a full 203(k) loan which is a little more intensive but offers borrowers the opportunity to finance larger home projects to truly transform a property in making it their home. Each product is available for home purchases and refinances.
Veterans also have a renovation loan option, allowing them to use VA mortgage financing while financing repairs or upgrades to a home. This is extremely beneficial because the VA loan is perhaps the best mortgage program in existence, offering our veterans low rates, no or low down payment options, and no monthly mortgage insurance.
A renovation mortgage program can quite literally open the doors to many more properties for home buyers, and give them an edge in finding a wonderful home without having to break the bank or suffer sticker shock from the price tag of similar “move in ready” homes. Renovation mortgage loans can also help borrowers make a house their home – with the appliances, updates, colors, and materials that make them happy and work best for them and their family.
Is there a downside to renovation mortgage loans? Not necessarily. For some renovation products, rates are slightly higher than their non-renovation counterparts, but the difference in rate is often more than offset by the cheap financing for the work that needs to be done. Some programs do have restrictions (for example, not all of the renovation products out there allow for extensive construction work such as foundation work or changes to load bearing walls), but working with a great loan officer (ahem, may I recommend a MasonMac LO?) that has knowledge of the renovation product suite should alleviate most of the headaches often associated with renovation loans. If you follow your loan officers instruction on what can and can’t be done, and work with the right contractors, renovation mortgage loans can offer some tremendous benefits and really turn another house into a wonderful place to call home.