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How to Finance a Fixer-Upper
You've found the perfect house in the desired location you've been waiting for and the price meets your budget. However, there's one catch -- the house will need a good number of repairs before you can live there. So, what to do?
The good news is, there are several loan options to help you finance those repairs whether you're a first-time homebuyer, an investor, or a seasoned homeowner. Finding a renovation loan specialist who can guide you to identify which type of loan will work best based on your qualifications and how the process will work is a great place to start.
Here are the most common renovations loans:
Fannie Mae HomeStyle® Renovation Loan:
This loan is a very cost-effective way to renovate as it combines the cost of both the home and the renovation into one mortgage. It will also allow financing up to 75% of the property's as-completed value which is the homes' appraised value after the repairs or upgrades are completed. Financing can be done with primary, second/vacation homes, and rental properties.
Freddie Mac CHOICERenovation® Mortgages:
These loans also allow financing improvements up to 75% of the property's as-completed value.
One of the bigger differentiators of this loan is it can allow loan proceeds to be used to renovate or repair property damage caused by natural disasters or to make improvements to prevent damage from a natural disaster. Renovations can include retaining walls, storm barriers, or storm preventative foundations.
FHA 203(k) Loan:
The FHA 203(k) loan has more flexible guidelines for the borrower. But it also has stricter guidelines for the property. For example, borrowers can have lower credit scores and higher debt-to-income ratios than conventional renovation loans. With an FHA 203(k) loan, the property must be owner-occupied or a primary residence. These loans also have an upfront mortgage insurance premium to consider.
Bottom line: If you are looking for help to renovate your dream home, there are several choices that are easy and affordable for just about anyone's budget.Source: Mortgage Market Guide
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