What is a Remodeling Loan?
What happens if you find your dream home, but it is less than, well, livable? A remodeling loan might be just what you need.
Maybe you find the perfect location, but the house needs significant work. How do you get a mortgage for that kind of property? You might consider a remodeling loan or renovation loan. A home renovation loan can provide the financing you need to buy the home and make the repairs.
Fannie Mae and the FHA have specialized loans that will fund both the purchase of a home and the renovation and repair costs. Fannie Mae calls its loan the HomeStyles Renovation Loan, and the FHA calls its program the 203(k) Home Improvement Loan. If a home is too beat up to qualify for traditional financing and you can’t afford to pay cash for the home, then these loans may be for you.
Depending on the amount of renovations you need, you might consider applying for a smaller loan to complete smaller cosmetic repairs. However, if you are in need of funding for a bigger project, you will need to opt for a larger home renovation loan.
Be aware, however, that these loans are a lot of work and are slow to close. Consequently, some listing agents aren’t fond of accepting offers with renovation financing. But if there isn’t a cash buyer on the horizon, the listing agent will work with you and your renovation loan.
Additionally, renovation loans include a lot of nuances (for example, you’re not allowed to personally perform the work; you have to use a licensed contractor), so you need to find a loan officer who is highly proficient with renovation loans. Saying all of that, these can be awesome loans — but you may not feel that way until after you’re finished with the renovation!