Individuals can now boost their borrowing power with a loan that allows them to tackle all your home improvement wishes in one go. Home renovation loans are one of the keenest ways for the house owners in which they can finance their complete home renovation project. The home renovation loans come in various forms and sizes but there are some instances when home buyers can consider home renovation loans.

What is a home renovation loan?

Home renovation loans provide homeowners with all the necessary funds which are required to make desirable changes in their house. The renovation loans take into account the estimated after value of the renovated house instead of current value of the home in order to calculate how much money the borrower can borrow. Therefore, from the proposed upfront of renovation, the homeowners can get the credit for the increase in house value. This makes renovation loans the only type of loans which provides credit to homeowners for the future value of home.

How home renovation loans work?

If you are purchasing a house that requires repairing or renovation, there are different types of loan options available. Depending on the type of financing you have applied for decides how home renovation loans work. There are different types of home loan renovation option which are as follows:

    • Fannie Mae Homestyle: The Fannie Mae Homestyle loan is a single-close loan that consists of cost of house repairs in the overall amount of the loan. This loan can be used for the renovation and repairs that are required by the appraiser. The loan can be used to pay for both structural and cosmetic repairs. The loan requires borrowers to deal with one monthly payment and lower rate of interest that covers both the purchase price and cost of repairs. You can either choose the 15-year or 30-year mortgage term with an adjustable-rate interest rate. With the help of Fannie Mae Homestyle loan, the final value of the loan is projected on the total value of the home after all the repairs and modifications are completed. A buyer who has an amazing credit score and have access to competitive interest rates can make a sound choice by choosing Fannie Mae Homestyle.
  • FHA 203(k): FHA 203(k) loan is similar to Fannie Mae Homestyle. The only difference is that FHA 203(k) loans are open to the buyers with lower credit scores. FHA 203(k) loans are divided into full and streamline options and the type of FHA 203(k) you require depends on the state of your property. This full loan is intended for the primary residence that requires significant repairs whereas the streamline program is for minor repairs which add up to less than $35,000.
  • EZ “C”onventional: The EZ “C”onventional mortgages can be used for non-structural home repairs that add value to the property. This type of loan comprises of both borrower-selected and appraiser-required renovations.
  • Jumbo Renovation: The jumbo renovation loan is similar to the EZ conventional mortgage, but this is used for homes which are higher priced which are not covered by other types of home renovation loans. The jumbo renovation loans can be used for the repairs borrower wants to make and for the projects by an appraiser. The repairs made to the house must be non-structural and add value to the home.
  • USDA Rural Development Home Repair Loans: The US Department of Agriculture (USDA) loans offers funding to the borrowers via the Rural Development Program in order to help the home buyers to buy housing that is safe and secure. The financial assistance provided by USDA Rural Development Home Repair Loans can also be used to cover new home appliances, windows, roofing, plumbing and electrical improvements and other upgradations which are necessary for health and safety of the household members. The eligibility for this loan program depends upon the income and rural location.

>>More: What should you know to get a home renovation loan?

When should you consider a home renovation loan?

The borrower must consider taking up a home renovation loan when they are sure that the renovation will add up to the value of the house and will reduce their long-term costs. There are some home renovation and repair projects which will increase the value of your property by a greater amount as compared to the amount you spent on home renovations. Some of the valuable repairs are bathrooms, basements, and attic insulation. If you are renovating your house before selling it, then you have to make sure that you are investing money in the right place.

While applying for the home renovation loans, the borrower must always calculate the risks associated with it. When you have less amount of money invested in your home, there is a higher risk of default on the part of borrower. Therefore, it is important to check your equity. Moreover, do not damage the marketability of your house by pushing it beyond the expectations of the buyer. This means do not invest too much into remodeling and make house overly expensive as compared to the other houses in neighborhood.

Lastly, you should consider a home renovation loan when you can easily handle the burden of another loan. Take quotes from different lenders because the costs of renovation and time duration can be much higher and longer than expected.

The Bottom Line

The renovation loans can be borrowed by the homeowner in order to make desirable changes in their house. Home renovation loans should be taken up by the homeowner when they are looking to make significant repairs. The renovation loans can be added up to in your monthly mortgage payments with the added amount of principal. The homeowner can borrow up to $25K to $500K of renovation loan depending on the type of repairs and renovations they aim for. Moreover, just because you do not have enough equity in your house does not mean that you should be trapped into buying finance products which are not well-suited to your house renovations. There are different types of home renovation loan programs such as Fannie Mae Homestyle, FHA 203(k), EZ “C”onventional, Jumbo Renovation and USDA Rural Development Home Repair Loans but before choosing one, the homeowner must do their homework.

Call Now Button