These loan programs can help you buy and renovate that fixer-upper

Translate this page
A toy house on top of a stack of $100 bills

08/12/2016 | Author: Editorial Staff

It's tough out there right now for first-time homebuyers. Even though home sales are rising, the share of first-time buyers fell in 2015, according to data from the National Association of REALTORS®. Part of that is the difficulty of saving for a downpayment and strict financing requirements, but in many areas, the inventory of appealing, entry-level homes is limited.

Where there is a dearth of updated or move-in-ready homes for first-time buyers, some will consider buying a fixer-upper. If that's you, make sure you know what your options are for financing the purchase and renovation of your first home. While using a traditional mortgage to purchase the home and financing the renovation separately is an option, there are loan products that combine the cost of the home and the renovation in one payment.

The Federal Housing Administration's 203(k) program allows homebuyers to finance $5,000 to $35,000 in renovation costs as part of their mortgage. Many of the same rules and restrictions that apply to typical FHA-insured single-family residential mortgages also apply to 203(k) loans, but there may be more fees charged by the lender for additional services that are part of the 203(k) process. The value of the property must fall within FHA limits for the area, as well. With this program, the money is held in an escrow account and released as the work is completed. Like other FHA products, insurance is required throughout the life of the loan. Interested buyers can find a lender using HUD's online tool.

While the 203(k) program is limited to primary residences, FannieMae's HomeStyle Renovation mortgages can be used for one-unit second homes or investment properties. HomeStyle mortgages are more like traditional mortgage products in terms of requirements for downpayments and private mortgage insurance, where mortgage insurance can be dropped after a set amount of equity in the home is reached. The amount buyers can borrow through the HomeStyle program depends on either the post-renovation value of the home as determined by an appraiser or the purchase price plus renovation costs, whichever is lesser. HomeStyle loans are also subject to conventional mortgage limits. Unlike the 203(k) program, there is no online tool to find a lender that deals in HomeStyle mortgages.

Work with your lender and your Texas REALTOR® to get the property that's right for you. 

Categories: Buyers
Tags: consumers, homebuyers, buying, mortgage, mortgages, renovation


Comments

Michael Dryden on 09/20/2016

With rising home prices, buying a fixer upper and financing the renovation can make sense, save you money and provide you with faster equity in the home as prices rise.  The financing in this article isn’t used nearly enough.


Leave a Comment

Read our commenting policy



advertise with us

Legal disclaimer

The material provided here is for informational purposes only and is not intended and should not be considered as legal advice for your particular matter. You should contact your attorney to obtain advice with respect to any particular issue or problem. Applicability of the legal principles discussed in this material may differ substantially in individual situations.

While the Texas Association of REALTORS® has used reasonable efforts in collecting and preparing materials included here, due to the rapidly changing nature of the real estate marketplace and the law, and our reliance on information provided by outside sources, the Texas Association of REALTORS® makes no representation, warranty, or guarantee of the accuracy or reliability of any information provided here or elsewhere on texasrealestate.com. Any legal or other information found here, on texasrealestate.com, or at other sites to which we link, should be verified before it is relied upon.

Advice for Consumers

4 signs the home you’re considering might need a foundation evaluation

Five reasons to include a home warranty with your home’s sale

What a pivotal moment in world history can teach us today

Subscribe

More advice for consumers