Question: Is it possible to include extra funds for renovations in a loan for a new house?
Yes. The most common loan product for that today is the FHA 203(k) renovation loan. With 203(k), you can get money not only to purchase the home but also to refurbish it. You can use the funds not only to replace and repair things like carpets, roofs, kitchens, and bathrooms but also to add on. You can repair and rehab an existing swimming pool, but can’t dig a new one.With 203(k) Standard, you’ll work with a consultant approved by HUD. That person will guide you through the process of gathering estimates for the work you plan. Expect to pay $500 to $1,500 for his or her services, depending on how extensive the work you plan to do.
Once you have your estimates, your loan officer will order the appraisal. There will be an “as is” value and an “as completed” value. The loan will be based on the second, higher value. The excess funds will go into a separate escrow account and be disbursed to the contractor as needed. If the property won’t be habitable while the work is being done, you’ll also be able to finance up to 6 months’ interest into the loan—assuming the as completed appraisal has a high enough value. Your down payment will be as low 3.5% of the financed value. The 203K Standard is limited to your county loan limits. Check with me or your lender for specifics.
There is also a “streamline” 203(k), which does not require the services of a consultant. Repairs are limited to $35,000. The paperwork is pretty much the same, and the rate is usually the same as for the full 203(k) loan.
The most important thing to realize is that, while this is an excellent loan program, it is not by any means a “turnkey” purchase; as the buyer, you’ll have to be quite involved in the process, from start to finish. In my experience, few people are willing to be that involved.
Still, if you can find the proverbial diamond in the rough—a trashed-out home in a nice neighborhood—you can build some immediate equity and get a home with a lot of new parts, to your specifications. You want to be sure that both your real estate agent and loan officer are experienced with this loan—there are a LOT of moving parts. BUT I am here to help you along the way.
I hope this has been insightful.. please let me know if you have any questions. Comments are always welcomed and appreciated.
Thank you for visiting my blog, please leave a comment or question and come back soon.
Roxy Redenbaugh, Broker
Sr Mortgage Consultant
Residential and Commercial
The Greatest Compliment I Can Receive Is A Referral From Friends, Family, and Business Associates,
NMLS#269926 Company NMLS#1930219
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