Renovation Home Loan

What Is A Renovation Home Loan?

A renovation home loan is your golden ticket to transforming a fixer-upper into your dream home. These specialized loans allow you to bundle the cost of the home and the renovation into a single mortgage loan. Whether you’re buying a home that needs some love or looking to upgrade your existing home, JVM Lending offers a variety of renovation home loan options to fit your needs.

Interested in learning about a specific type of Renovation Loan? Use the links below to jump ahead to its section:

FHA 203k Renovation Loans

Conventional Renovation Loans

USDA Renovation Loans

VA Renovation Loans

Why Choose  A Renovation Home Loan?

Core Benefits:

– Streamlined Financing: Cover the cost of both the home purchase and the renovation in a single loan, making financial planning easier.

– Quick Equity Building: Renovating your home often increases its value, allowing you to build equity faster than with a traditional mortgage loan.

– Flexible Property Types: From single-family residences to 2-4 unit properties, renovation loans offer a wide range of eligible property types.

– Personalized Home: Customize your new home to meet your specific needs, from essential structural repairs to luxury upgrades like swimming pools.

Eligibility Requirements:

– Credit Score: A minimum FICO score of 620 is generally required.

– Down Payment: Varies by loan type, but can be as low as 0% for USDA and VA renovation loans.

– Occupancy: Most programs require the property to be your primary residence.

– Contingency Reserve: A minimum of 10% is often required, which can go up to 20% based on the property’s condition.

 

In-Depth Look at Different Renovation Home Loan Program Guidelines

FHA 203k Limited

• Program Type: Government
• Loan Purpose: Purchase/Refinance
• Down Payment: 3.5% minimum, may be gifted
• Structural Repairs: Not allowed
• Maximum Repair Amount: $35k max, including fees & contingency

Detailed Overview:

The FHA 203k Limited loan is ideal for buyers looking to make non-structural repairs such as cosmetic updates, appliance upgrades, or minor landscaping. With a minimum FICO score of 620 and a down payment as low as 3.5%, this loan is accessible for many buyers. However, luxury items like swimming pools are not allowed. The program allows for two draws, with 50% of the repair amount provided at closing and the remaining 50% after all repairs are complete.

 

FHA 203k Standard

• Program Type: Government
• Loan Purpose: Purchase/Refinance
• Down Payment: 3.5% minimum, may be gifted
• Structural Repairs: Allowed
• Minimum Repair Amount: $5k

Detailed Overview:

The FHA 203k Standard loan is more versatile than its Limited counterpart, allowing for structural repairs like foundation work or room additions. This loan also allows for up to five draws, making it easier to manage larger projects. Material draws are allowed, and there’s a minimum repair amount of $5,000, making it suitable for more extensive renovations.

 

 

Fannie Mae® HomeStyle®

• Program Type: Conventional
• Loan Purpose: Purchase/Refinance
• Down Payment: 5% minimum
• Structural Repairs: Allowed
• Luxury Items: Allowed*

Detailed Overview:

The Fannie Mae® HomeStyle® loan is a conventional renovation loan that offers the most flexibility. Not only can you make structural repairs, but you can also include luxury items like swimming pools or outdoor kitchens. The down payment starts at 5%, and the loan can be used for primary residences, second homes, and even investment properties. Up to five draws are allowed, and materials draws are permitted.

*Luxury items can include but are not limited to pools, pool houses, built-in hot tubs and outdoor living areas. Freestanding ADU’s and buildings may be allowed, see guidelines for more details. County limits apply.

 

Freddie Mac CHOICERenovation®

• Program Type: Conventional
• Loan Purpose: Purchase/Refinance
• Down Payment: 5% minimum
• Structural Repairs: Allowed
• Luxury Items: Allowed*

Detailed Overview:

Similar to the Fannie Mae® HomeStyle®, the Freddie Mac CHOICERenovation® loan offers a lot of flexibility but can be combined with the Home Possible® program for added benefits. This loan allows for structural repairs and luxury items, making it one of the most versatile options. Up to five draws are allowed, and materials draws are permitted.

*Luxury items can include but are not limited to pools, pool houses, built-in hot tubs and outdoor living areas. Freestanding ADU’s and buildings may be allowed, see guidelines for more details. County limits apply.

 

 

USDA Renovation Standard and Limited

• Program Type: Government
• Loan Purpose: Purchase Only
• Down Payment: 0 down, 100% financing
• Structural Repairs: Allowed (Standard), Not allowed (Limited)

Detailed Overview:

The USDA Renovation loans are perfect for those buying in USDA-eligible rural areas. With no down payment required and the option for structural repairs in the Standard program, these loans are incredibly accommodating. The Limited version restricts you to non-structural repairs but still offers the benefit of zero down payment.

 

VA Renovation

• Program Type: Government
• Loan Purpose: Purchase/Refinance
• Down Payment: 0 down, 100% financing
• Luxury Items: Allowed*
• Structural Repairs: Minor Structural Repairs Allowed

Detailed Overview:

The VA Renovation loan is exclusively for veterans and allows for minor structural repairs. With no down payment and 100% financing, this loan is a fantastic option for eligible veterans. Up to three draws are allowed, and while material draws are not permitted, the maximum repair amount is $50,000, including fees and contingency.

*Luxury items can include but are not limited to pools, pool houses, built-in hot tubs and outdoor living areas. Freestanding ADU’s and buildings may be allowed, see guidelines for more details. County limits apply.

 

 

What’s The Difference Between a Renovation Home Loan and a Home Equity Loan?

When it comes to financing home improvements, both renovation home loans and home equity loans are popular options. However, they serve different needs and come with their own sets of rules and benefits. Understanding the key differences can help you choose the right financing option for your situation.

Renovation Home Loans are primarily designed for purchasing a new home that requires repairs or improvements. It can also be used for refinancing and renovating an existing home. The loan amount is based on the projected value of the home after renovations.

Meanwhile, Home Equity Loans are aimed at homeowners who already have equity in their existing homes. The loan allows you to borrow against that equity to fund home improvements, consolidate debt, or for other purposes.

 

Pros and Cons of Renovation Home Loans

When considering a renovation home loan, it’s essential to weigh the advantages and disadvantages to determine if it’s the right fit for your situation. Here’s a breakdown of the pros and cons to help you make an informed decision.

Pros:

One-Stop Financing: Renovation home loans allow you to bundle the cost of the home and the renovation into a single loan. This simplifies your financial planning and can make the entire process more manageable.

Instant Equity: By financing your renovations through the loan, you can immediately increase the value of your home, thereby building equity more quickly than you would with a traditional mortgage loan.

Customization: These loans give you the freedom to customize your home to your liking, whether that means essential structural repairs or luxury upgrades like a swimming pool.

Flexible Property Choices: Renovation loans open up a broader range of potential properties to consider. You’re not limited to turn-key homes; you can also look at fixer-uppers that may be in your ideal location or have other features you desire.

Potential Cost Savings: In some cases, it might be more cost-effective to renovate an existing home than to buy a home that already has the features you want.

Various Loan Options: With multiple types of renovation loans available, from government-backed options like FHA 203k and VA Renovation to conventional options like Fannie Mae® HomeStyle®, you can likely find a loan that fits your needs.

Cons:

Complexity: Renovation loans are more complex than standard mortgages. They often require additional steps, such as multiple appraisals and inspections, and the involvement of a HUD Consultant for some loan types.

Higher Interest Rates: Renovation loans can sometimes come with slightly higher interest rates than traditional mortgage loans, increasing your long-term costs.

Stricter Requirements: These loans often have more stringent eligibility requirements, including minimum credit scores, contingency reserves, and sometimes higher down payments.

Longer Closing Times: Due to the additional steps involved, the closing process for a renovation loan can take longer than for a standard mortgage, which might not be ideal if you’re in a hurry.

Risk of Over-improvement: There’s always a risk that you might over-improve your home, making it more expensive than the average property in your neighborhood. This could make it harder to sell later on.

Budget Overruns: Renovation projects are notorious for going over budget. While contingency reserves can help, they may not cover all unexpected costs, potentially leaving you to cover the difference.

By carefully considering these pros and cons, you can better assess whether a renovation home loan is the right choice for you. If the advantages outweigh the disadvantages and align with your long-term goals, a renovation loan can be an excellent way to secure your dream home.

 

Frequently Asked Questions About Renovation Home Loans

What is a renovation home loan?

A renovation home loan allows you to finance both the purchase of a home and the cost of renovations in a single mortgage. This is particularly useful for buying a fixer-upper or upgrading your existing home.

What types of properties are eligible for renovation loans?

Various types of properties are eligible, including single-family residences, 2-4 unit properties, condos, and even some manufactured homes. The specific types of eligible properties can vary depending on the loan program.

Can I use a renovation loan for luxury items like a swimming pool?

It depends on the loan program. For example, Fannie Mae® HomeStyle® and Freddie Mac CHOICERenovation® loans allow for luxury items like swimming pools. However, government-backed loans like FHA 203k and USDA Renovation loans do not.

What is the minimum credit score required for a renovation loan?

The minimum FICO score generally required for most renovation loans is 620. However, eligibility requirements can vary between loan programs.

How many draws can I take for my renovation project?

The number of draws varies by loan type. For instance, FHA 203k Limited allows for 2 draws maximum, while the Fannie Mae® HomeStyle® and Freddie Mac CHOICERenovation® allow for up to 5 draws.

What is a “draw” in a Renovation Loan?

A draw in the context of a renovation loan refers to the portion of the loan amount that is disbursed to cover specific stages of the home improvement project. These funds are released after each phase is completed and inspected. The number of allowed draws varies by loan type and helps manage cash flow, ensuring contractors are paid and work progresses as planned.

What is a contingency reserve?

A contingency reserve is an additional amount of money set aside to cover unexpected costs during the renovation. The reserve is generally between 10% to 20% of the total renovation cost, depending on the loan program and the condition of the property.

Can I do the renovations myself?

Most loan programs require the work to be done by a qualified contractor. However, some programs may allow for a “self-help” option where the homeowner can do some of the work themselves, under specific guidelines.

Can I use a renovation loan to refinance my existing home?

Yes, many renovation loan programs like the FHA 203k, Fannie Mae® HomeStyle®, and Freddie Mac CHOICERenovation® allow for both purchase and refinance options. VA Renovation loans also offer this flexibility.

What is the maximum amount I can borrow for renovations?

The maximum amount varies by loan program and by the county loan limits. For example, FHA 203k Limited has a maximum of $35,000 for renovations, while other programs like Fannie Mae® HomeStyle® do not have a specified maximum amount, but county loan limits apply.

 

How Do I Get Started With A Renovation Loan?

To kickstart your renovation journey, reach out to JVM Lending’s experts. We’ll guide you through the loan requirements, your debt-to-income ratio, and any other questions you may have to find the best loan program for you.

If you have more questions or need further clarification, don’t hesitate to contact us at (855) 855-4491 or [email protected]. We’re here to help you unlock the home of your dreams!