A renovation loan is an excellent option for existing homeowners who want to change up their living space with a few improvements, whether big or small. For one, they provide low-interest funding compared to credit cards, which carried an average 16.65% interest rate in the second quarter of 2022. Second, when compared to cash, a home renovation loan lets you make the changes you want when you want them instead of waiting for your savings to meet your goals.
If you own a home, you have several loan options available to you. They include an FHA 203(k) standard, FHA 203(k) limited, FNMA HomeStyle® or VA renovation loan. As far as what can be renovated, it depends on your budget, property and imagination!
What are my home renovation loan options?
Starting the renovation process begins with knowing what your loan options are. Here is a quick rundown of the four programs available.
Fannie Mae HomeStyle® Renovation Loans: These are conventional loans backed by private lenders. This loan is technically capped at 80% of your finished home’s value and can be used to fund “luxury” changes to your home. In addition, you can use a HomeStyle® loan to renovate your primary residence, second home or investment property.
VA Renovation Loan: Sometimes called VA Rehab Loans, these are offered to veterans or active-duty service members who have served 90 consecutive days of active service during wartime or 181 days during peacetime. Details of this program include:
• Low-interest rates when compared to other loans for home renovations.
• Flexible credit score requirements.
• Only covers repairs and upgrades that improve the safety and livability of the home.
FHA 203(k) limited: Backed by the Federal Housing Administration (FHA) and caps its funding at $35,000. This loan will help fund repairs, fixes and cosmetic changes. This loan covers changes that can be made while you live in home.
FHA 203(k) standard: This FHA renovation loan funds major renovations or structural changes that cost at least $5,000. The cap can vary depending on county laws. You can replace, construct or demolish different parts of your home with this loan option.
How do I qualify for a renovation loan?
Renovation loans are specialized programs under larger homebuying programs. For example, an FHA 203(k) program is part of the general FHA mortgage program available to those buying a home. Because of this, the renovation programs generally hold the same lending requirements as their umbrella program.
FHA loans require you to have a fico score of 500 or higher. The highest your debt-to-income (DTI) ratio can be is 50%, and that’s if you’re able to meet additional requirements. VA renovation lending requires you to have a certificate of eligibility (COE). For Fannie Mae HomeStyle®, you’ll be asked to meet stricter credit score and DTI requirements. But like most conventional loans, the specifics depend on many factors, such as the home you’re renovating.
Finding the renovation solution for you
The right renovation option is the one that fits your unique needs and financial position. As one of the nation’s top renovation lenders — Homebridge has been named the top FHA 203(k) lender by HUD several times over — we understand how to deliver service that goes beyond your expectations.
My mission is to make your vision of a perfect home a reality, and I will work with you to ensure that happens.
To get started, contact me today!