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Michael Seaton's Blog

By Michael Seaton | Agent in Half Moon Bay, CA

Renovation Financing


Renovation Financing

While many consumers think of mortgage refinancing, Home equity loans, HELOCS (Home Equity Line of Credits) when thinking of their Renovation Financing options the reality is that you must already own the home prior to qualifying for the purchase. One of the best kept secrets in real estate financing is the ability to use Renovation Financing to initially purchase your home.

Some common types of Renovation Financing programs used can be described below:


FHA 203K Loan

An FHA 203 (K) is insured by the government and has many other characteristics of standard FHA loans with the primary exception being that a borrower can get one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property.

The FHA 203(k) program is the Department’s primary program for the rehabilitation and repair of home. The rehab loans play a vital role in both neighborhood revitalization and expanding homeownership opportunities.

The property must be a one- to four-family dwelling that has been completed for at least one year in order to be eligible for the program and the owner must occupy at least one of the units as their primary residence. Borrowers must also work with contractors, inspectors and city departments in order to complete a project plan in accordance with the many required guidelines.

The amount of complexity involved in FHA 203(K) is the primary reason why many people are turned away, however the process can be a streamlined and smooth process for borrowers who are willing to learn the essential steps required.

FHA’s Streamline 203(k) Mortgage

The FHA’s Streamline 203(k) Mortgage is a Repair Program which permits homebuyers to finance an additional $35,000 into their mortgage to improve or upgrade their home before move-in. This program is designed for homes in need of limited and basic repairs, as opposed to the more intricate structural and architectural requirements which may be imposed on standard FHA 203(k) loans.

A home inspector or FHA appraiser can easily identify some of the repairs which may be eligible under a FHA’s Streamline 203(k) Mortgage.

Fannie Mae HomePath Renovation Loan

Fannie Mae Home Path Renovation Loans is the newest loan program for Fannie Mae Owned homes that need minor repairs. Like traditional HomePath loans the home must be owned by Fannie Mae in order to qualify for a HomePath Renovation loan. Since Fannie Mae currently owns so many homes in their portfolio, this is an option for many HomePath renovation financing approved homes.

Beyond low down payments as low as 3% and the ability to finance basic repairs into the loan, Fannie Mae Home Path Renovation Loans may actually put a buyer making an offer in a better position than their counterparts. This is because compared to an All Cash or Conventionally financed offer, the HomePath loan will eventually be Sold to Fannie Mae on the Secondary market serving as a future revenue stream.

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