Did you know that you can actually obtain a loan that allows you to renovate your house? If you have been wanting to make some changes to your house, but have lacked the finances to make it happen, you have a few options. See which one is the best fit for you.
Fannie Mae HomeStyle loan
Fannie Mae created the HomeStyle loan which can be used to make any improvement to your house that is permanently affixed to your house and increases the value of it. Other than that, there are no restrictions on the type of work that you have done to your house as long as it follows the rules of how it works.
In order to be approved for the loan, you need to hire an approved contractor to do the work. You will need to obtain and submit a bid for the work.
A home appraiser will also need to look at your house and the submitted renovation plans to determine what the value of your home will be when the work is completed. From this point, you will be able to borrow up to 50% of the appraised value of the renovations.
Once you have been approved for the loan, the funds will be kept in an escrow account while the contractor is doing the work. Once the renovation is complete and the work is inspected and approved, the funds will be released directly to the contractor. The contractor will have up to 12 months to complete the work.
Repayment of the loan takes place with terms of 15 to 30 years, and there are options for both fixed rates and adjustable rates. While you are only required to pay 5% down, you will have to pay PMI if your down payment is below 20%.
FHA 203(k) loan
There are many similarities between this loan and the one from Fannie Mae. The main difference is you only need a downpayment of 3.5%, but there are additional restrictions on how you renovate your home.
The funds can be used to add on a room, finish a basement or attic space, change the floorplan, or upgrade a kitchen or bathroom. You can even rebuild the house so long as you keep the original foundation in place. The other difference is the work needs to be completed within 6 months instead of one year.
Section 504 Home Repair Program
This is a government initiative that helps to create safer homes. The funds cannot be used on fancy upgrades to change the look of your house. Instead, the funds are to be used on things like repairing and replacing the major systems of the house, or making a house accessible for someone in a wheelchair.
The interest rate is fixed at 1% and you can borrow up to $20,000 with 20 years to pay back the funds. Once you are approved for the loan, a loan officer will visit your house for a walk through. They will see which projects qualify for the program. It is then your job to obtain three bids on having the work completed.
There are options to help you turn your house into a safer or more functional space. Start your process by talking to several different lenders to find the one that you want to work with. An experienced lender will be able to guide you through the process.
