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What is a Renovation Mortgage Loan?

Couple looking at a home

If you could design your Dream Home, what would it look like?

 

If you're like most people, you'd choose a home that expresses your individual style. Whether that includes modern, high-end finishes, solid-surface countertops, or a shower that feels like a rain forest, the choice is yours.

 

What are you dreaming of?

  • A grand kitchen
  • A bathroom for every bedroom
  • A home office 
  • An outdoor oasis
  • A stylish laundry room
  • A garage bar

If you can dream it, you can also find ways to finance it. 

 

Here’s how it usually goes: You buy a fixer upper for a great price with a vision of how you're going to put some sweat equity into it and transform it into the home of your dreams. This of course means you have to find the time to do the work (goodbye evenings and weekends), ask for help if you aren’t a builder or at least handy with tools, find the finances to pay for it (credit cards, store credit, extra cash, home equity loan), and keep the excitement of your dream alive throughout the whole ordeal.

 

Or you could get a renovation mortgage. This option allows you to get the funds needed to buy the property AND the funds you need to make the renovations/repairs on your house. And it's all rolled up into one mortgage with affordable monthly payments. Just as important, you can pay for a professional to do the work and to get it done in a timely manner. 

 

With interest rates where they’ve been for the last few years, for every $1,000 you roll into the mortgage, you’ll only pay about $6 more per month on your house payment. So if you need a $20,000 kitchen upgrade, you can plan for about $120 more per month. Not too bad!

 

What are my renovation loan options?

You have a few choices for financing your dream home remodeling project. Here’s a look at a few popular options:

  • FHA 203(k) Standard
  • FHA 203(k) Limited
  • HomeStyle Renovation

The FHA 203(k) loans are essentially the same product, with differing requirements or allowable repairs. With this loan, you can borrow up to 96.5% of the appraised value - based on the value when the improvements or repairs are completed – to purchase (or refinance) a home and complete the renovations.

 

There are a few key differences between the two:   the Limited 203(k) doesn’t cover structural repairs. Anything structural needs to be bumped to the Standard 203(k). Also, the Standard 203(k) requires a HUD consultant on the loan. This person draws up the paperwork and works with the buyer and their contractors to get a write-up before the appraisal (we can put you in touch with a HUD consultant). The Limited 203(k) does NOT require a HUD consultant. And finally, there’s a cost difference. The allowable cost of renovations for the Limited 203(k) is $35,000 MAX. If your repairs and renovations go above $35,000 then you need to get into a Standard 203(k) loan.

 

With the HomeStyle Renovation mortgage, you can buy a house and fix it up or refinance your existing mortgage and receive funds to cover the costs of repairs, remodeling, renovations or energy efficient improvements to the property.

 

With a 10% down payment you can add your taste and style to a house to make it your home with remodeling projects like a new kitchen, bathroom, room addition or energy efficient upgrades. 

 

As you can see, renovation loans can be a great tool to help you achieve your dream home. So go ahead, start dreaming about those new kitchen cabinets, matching appliances (for once!) and granite countertops. 

 

When you’re ready to plan your remodeling or renovation project, find your local Amerifirst branch or apply online, and someone from our Renovation team will be happy to sit down and discuss the possibilities.

 

Or download our Renovation Loan Guide for more details.

 

Ultimate Guide to Renovation Loans

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5 Reasons Not to Skip Your Home Inspection

You found a house you love—hooray! But with lots of other buyers breathing down your neck, you feel like you need to act fast. To make your offer more attractive to the seller, you might be tempted to skip your home inspection, but here are five good reasons not to! 1.) Not all problems are obvious. It’s easy to spot issues like a crack in the sink or a broken light fixture. But do you know how to recognize foundation problems, termite infestations, outdated wiring, or sewer system problems? Trained home inspectors do and taking the time to have them go over the entire property before you sign the papers can prevent you from buying a headache instead of a home. BOTTOM LINE: The great thing about an inspection is that if you see major problems you’re unwilling to take on, you can change your mind and walk away. 2.) You may not be able to afford the repairs. If you’re like many new homeowners, you may not have much set aside to pay for needed repairs after saving up for your down payment and closing costs. While you may not mind waiting a bit to repaint or update appliances, waiting on problems like leaky roofs, broken plumbing, or infestations will only make them worse, and some issues, like broken furnaces, may need to be repaired right away. BOTTON LINE: You don’t want to go deep into debt to keep your home safe and comfortable. Instead, it’s worth negotiating with the seller to pay for repairs. If they refuse, you can simply walk away. 3. Some problems can make it harder to insure the home. Getting home insurance is essential because lenders need to see an insurance policy before you can close on your home—and of course, you’ll want to have your home protected in case anything goes wrong. However, some companies may decide that your home’s older electrical systems, plumbing, or building materials make it too risky to insure. BOTTON LINE: If essential updates are needed, the only choices are to ask the seller to pay for them, pay for them yourself if you can afford it, or walk away from the deal. 4. Serious issues can affect the resale value of the home. Your home is probably the biggest investment you will ever make. However, if it has major problems, instead of building your wealth, it could turn into a lousy investment that threatens your financial well-being. BOTTON LINE: While a home inspection typically costs a few hundred dollars, it’s an excellent investment in your peace of mind and financial health. 5. Some problems can threaten your family’s health or even your life. This sounds scary, but it’s no exaggeration. Issues like lead paint, black mold, radon (an odorless radioactive gas), or carbon monoxide leaks can cause serious and sometimes fatal health problems. BOTTON LINE: These issues are also easy to miss without a professional home inspection, and it’s simply not worth taking the risk. While it’s not easy to compete with other buyers who are bidding for the house you want, home inspections are one area where you don’t want to cut corners. To protect your physical, financial, and mental health, there’s no substitute for a professional home inspection.

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Let's Talk FHA Loans

  If apartment living is getting old, or you've outgrown your parents' basement and house rules, you may be thinking about buying your own place. For this reason, you may be interested in learning about home loans that offer low and no-down payment options and have flexible lending requirements. One of these is the FHA loan. Let's take a closer look. 

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