A home renovation is an exciting opportunity to make your place look and function just the way you want. But, the cost of it all can feel a bit daunting. This is where the USDA Renovation Loan comes in handy, especially if you are looking to buy a home in a USDA-eligible rural area.
In this guide, we’ll dive into the two kinds of USDA Renovation Loans – Standard and Limited – and see how they can help turn your house into the home you’ve always dreamed of.
What is a USDA Renovation Loan?
The USDA Renovation Loan is a special loan for anyone living in certain rural areas, helping them pay for home improvements. Unlike many other loans, you don’t need a down payment. It comes in two types – Standard and Limited, covering everything from big structural changes to small repairs.
How Does a Renovation Loan Work?
Renovation loan options like the USDA rehab loan are structured to fund both the purchase of your home and the estimated repair costs. The loan amount is not disbursed in a lump sum, but in draws, ensuring the funds are utilized as intended for the renovation. This structured disbursement aligns the financial flow with the progress of your renovation project, keeping everything on track.
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April 28, 2024
What are the Basic Eligibility Requirements for a USDA Renovation Loan?
Meeting the USDA renovation loan requirements is a crucial step toward accessing this type of financing. The main things you need include:
- A minimum FICO score of 620.
- The property should be owner-occupied, detached Single Family Residence (SFR), and situated in a USDA-eligible area.
- 100% Loan-to-Value (LTV) on purchase, making it a highly accessible home mortgage with a renovation loan.
What’s The Difference Between Standard and Limited USDA Renovation Loans?
The USDA Renovation Standard and Limited programs each have their unique set of features tailored to different renovation needs.
USDA Renovation Standard
- Program Type: Government
- Loan Purpose: Purchase Only
- Down Payment: 0 down – 100% financing
- Structural Repairs: Allowed (see guidelines)
- Luxury Items: Not Allowed
- Occupancy: Primary Residence Only, USDA Eligible
- Property Types: Single Family Residence, PUDs (Planned Unit Developments)
- Minimum FICO: 620
- Contingency Reserve: Minimum 10%, but up to 15% if utilities are off or if Mold/Fire/Water damage is present
- Number of Draws: 5 draws maximum
- Materials Draws Allowed: No
- Minimum/Maximum Repair Amounts: No minimum repair amount
USDA Renovation Limited
- Program Type: Government
- Loan Purpose: Purchase Only
- Down Payment: 0 down – 100% financing
- Structural Repairs: Not Allowed
- Luxury Items: Not Allowed
- Occupancy: Primary Residence Only, USDA Eligible
- Property Types: Single Family Residence, PUDs (Planned Unit Developments)
- Minimum FICO: 620
- Contingency Reserve: Minimum 10%, but up to 15% if utilities are off or if Mold/Fire/Water damage is present
- Number of Draws: 2 Draws Maximum (50% of repair amount is provided at closing; Remaining 50% after all repairs are complete)
- Materials Draws Allowed: No
- Minimum/Maximum Repair Amounts: No minimum repair amount; $35k maximum
Frequently Asked Questions
Who can apply for a USDA Renovation Loan?
Anyone living in a USDA-eligible rural area can apply for USDA loan programs. They’re designed for homeowners who want to make their place better, whether through big changes or small fixes.
Do I need a down payment?
No, one of the big perks of a USDA Renovation Loan is that it requires zero down payment, making it easier to get a home renovation mortgage and get started on your home improvement projects.
How does the draw system work in USDA Renovation Loans?
Instead of getting the entire loan amount at once, you receive it in parts or “draws” as your renovation progresses. For the Standard program, you can have up to 5 draws, while the Limited program allows for 2 draws.
Can I include luxury items in my renovation?
No, luxury items are not allowed under either the Standard or Limited USDA Renovation Loan programs.
What types of properties are eligible?
This USDA program is for single-family residences and Planned Unit Developments (PUDs) that are owner-occupied and located in USDA-eligible rural areas.
How do I know if my area is USDA-eligible?
You can check the USDA eligibility map online or contact a local USDA office to find out if your area qualifies for a USDA housing program.
Are there other loans or financing options for home renovations?
Yes, there are other options like Home Equity Lines of Credit (HELOCs), Fannie Mae HomeStyle® Renovation Loans, or unsecured personal loans. It’s a good idea to talk to a financial advisor or lender to explore all your options.
Where can I get more information or apply for a USDA Renovation Loan?
You can reach out to lending experts like JVM Lending or contact your local USDA office for more information and to start the application process.
Your Next Steps
With a USDA Renovation Loan, the path to a revamped, beautiful home is not a distant dream but an attainable reality. Coupled with the expertise of JVM Lending, navigating through the USDA renovation loan program becomes a breeze.
Your dream home is within reach! Reach out to JVM Lending at (855) 855-4491 or [email protected] to embark on a seamless home renovation journey.
