A special mortgage is required to finance a home in need of renovation.
A fixer-upper home purchase may allow a homebuyer to purchase the home at a below-market value, put in some renovations and have a home with a significant level of equity. The difficulty with buying a home needing repairs is the extra cost of the repairs on top of the down payment and closing costs.
Renovation Mortgages
Renovation costs cannot be added to the amount received when a regular mortgage is used to purchase a home. The loan amount is based on the current appraised value of the home and adding funds to the loan amount to repair the home will increase the loan amount above the limit the lender will accept. Homebuyers who want to buy and fix up a home need to obtain a mortgage specifically designed for renovation or fixer-upper purchases.
FHA 203(k) Loan
The Department of Housing and Urban Development offers renovation mortgages through the FHA 203(k) rehabilitation program. The 203(k) program allows a homebuyer to include the projected costs of renovating a home in the initial FHA-insured home loan. The program requires an inspection and professional estimate of the repair costs. An approved FHA 203(k) lender will take a homebuyer step-by-step through the process to get approved for a FHA renovation mortgage. Once approved, the funds for the repairs are set aside in an escrow account. The homeowner disburses funds from the account as repairs are completed.
203(k) Streamline Mortgage
HUD has added a streamlined version to the FHA 203(k) rehabilitation mortgage programs. The streamline, limited-repair 203(k) program allows a homebuyer to receive up to $35,000 to cover the cost of repairs on a fixer-upper home. The program allows for the payment of repairs so a home can be quickly moved into. The streamline 203(k) may also be an option for the do-it-yourself homebuyer.
HomePath Renovation Loans
Mortgage lender Fannie Mae offers renovation mortgages through the company's HomePath sales and financing programs. HomePath is Fannie's program to sell the homes it owns through foreclosure. To help promote the sale of the Fannie Mae-owned properties, HomePath includes special mortgage programs for buyers of HomePath-listed properties. A benefit of using HomePath to purchase and finance a fixer-upper home is the program can be used for owner-occupied or investment properties. An investor can finance up to 10 properties using HomePath renovation loans.
Tags: fixer-upper home, loan amount, program allows, allows homebuyer, cost repairs
