Do you like your house, but don’t love it anymore? Or are you considering buying a home that could use a little (or a lot of) TLC? A home remodeling project could be just what you need to breathe life into a dated home. And, with a home renovation loan, you could finance your project with ease.
What is a home renovation loan?
A home renovation loan is a type of mortgage loan that can help you complete your home remodeling project(s). Getting a renovation mortgage can help streamline your budget because this type of loan rolls the cost of purchasing a home and the renovation costs into one loan. That means you’ll only have one monthly payment.
However, if you aren’t planning to purchase a new home but want to renovate your current home, a renovation refinance loan can help you finance your project. A renovation loan can help you remodel your kitchen, complete cosmetic updates, and more. Your old mortgage would be refinanced into one loan to cover your new monthly mortgage payment as well as your home remodeling costs.
How does an FHA 203K mortgage work?
One of the more popular renovation loans available is the FHA 203K renovation mortgage. Backed by the Federal Housing Administration (FHA), an FHA 203K is designed to help keep renovation costs low and can be used for both purchasing a home or refinancing your current one. Some benefits of an FHA 203K mortgage include lower down payment requirements and lower refinancing interest rates.
There are two FHA 203K loan styles to choose from: full/standard and limited. Both options can help with home remodeling but one is for big projects while other is for covering the costs of smaller renovations.
- FHA 203K Full/Standard—This loan can help update homes that may need structural repairs or a major renovation. For example, you could replace old plumbing, updated your floors, make energy efficient changes, or improve accessibility.
- FHA 203K Limited—With this loan you could make smaller, cosmetic updates that typically have a shorter timeline. Common uses for this renovation loan may include repairing a patio, finishing a basement, or replacing your gutters.
What is a VA renovation loan?
Did you know that some lenders offer VA home renovation loans in additional to regular VA home loans? A VA renovation loan provides active duty and retired military members—and qualified spouses—with the necessary funds to remodel or repair their homes.
Whether you plan to purchase a fixer-upper or want to update your current home, a VA home renovation loan offers the savings of a VA loan with the convenience of one application, one closing, and one monthly payment. Other benefits can include no down payment*, no private mortgage insurance and loan amounts up to $1 million.
Do Fannie Mae and Freddie Mac offer renovation loans?
Fannie Mae and Freddie Mac both have government-backed renovation loan options. These loans give you the flexibility you need to turn a house into your dream home.
The Fannie Mae HomeStyle® loan and Freddie Mac CHOICERenovation® mortgage offer affordable financing for your home renovation or home remodeling project and are designed to update older homes. Both programs offer flexible financing to make repairs to your existing home or if you want to purchase and renovate a home that is new to you.
Are there other types of home renovation loans?
If government-backed loans don’t work for you, there are plenty of other options to consider. Whether you want to add a pool, need to make repairs that an inspector found or want to give your home cosmetic upgrades, you can find financing to help get the job done.
- Repair Escrow—An escrow account is an account used to set aside funds for a particular purpose, usually property taxes or homeowner’s insurance. A repair escrow functions similarly. Your lender will set up and manage your repair escrow account to help you pay for your property repairs.
- Pool Escrow—Feel like your backyard could use a pool? A pool escrow can help you make a splash. Your lender can set up an account with funds dedicated to covering the costs of building a pool.
- EZ “C”onventional—When you need to make small upgrades to your home, you may need a smaller loan. An EZ “C”onventional repair escrow or EZ “C” simplifies the financing of small updates and repairs to a home that don’t require structural work.
When you’re ready to plan a home remodeling project, one of the last things you want to worry about is how things are going to be paid for. Talk to a PrimeLending renovation loan expert to discuss your options.
Product info as of 6/27/23, subject to change.
*Down payment waiver is based on VA eligibility.
