Getting a loan for a fixer-upper is a little different than getting a traditional mortgage. A conventional mortgage doesn’t have to cover the cost of housing repairs or renovations, but there are programs specifically designed to help you renovate a purchase, or even refinance and repair a home you currently own. These specialty loan programs can help you finance improvement home additions such as solar panels, cover the cost of repairs, or even allow you to make additions to a home.
FHA 203k Rehabilitation Loan
An FHA 203k Rehabilitation Loan can be ideal for homes that need extensive repairs to be livable. The loans under this program can cover any repairs or renovations over $5,000, all the way up to 110% of the projected value of the home after renovations have been made. This program even allows you to create a contingency fund for unforeseen costs associated with your renovation.
Requirements for an FHA 203k Loan
- A minimum credit score of 640
- Debt-to-income (DTI) ratio on the mortgage of 31% or less
- DTI for all expenses cannot exceed 43%
- The loan must be for a primary residence. This can include up to a fourplex as long as you’ll reside in one of the units.
This loan program is not for investors, but for homebuyers or those looking to refinance and renovate their primary residence. Also, these homes can be used for vacation properties or second homes, but only under special circumstances for people who have dual-residency requirements for their careers. You will be required to get special approval for such properties before the loan and renovations can move forward.
Fannie Mae HomePath Loans
Fannie Mae HomePath Loans work much like the FHA 203k program, allowing homeowners to add repairs into their total loan amount. Repairs through this program are capped at $35,000 or 35% of the projected value of the property after repairs have been completed.
This loan program is great for first-time homebuyers because down payments can be as low as 3% of the total loan amount. Also, current homeowners who are looking for a second home may also qualify under this program.
HomePath Loan Requirements
- Loan-to-Value (LTV) capped at 97 percent with mortgage insurance
- LTV capped at 80 percent without mortgage insurance
- A minimum credit score of 660 for those with mortgage insurance
- A minimum credit score of 620 for those without mortgage insurance
- Total Debt-to-Income (DTI) ratio must be less than 45%
Fannie Mae HomeStyle Loans
The Fannie Mae HomeStyle Loan is another option for homeowners. These loans work much like the HomePath program. Through this program, underwater homeowners can start rebuilding equity and do not have to pay mortgage insurance if their LTV is 80% or below.
Requirements of a HomeStyle Loan
- A total DTI of no more than 45%
- A minimum 3% down payment with mortgage insurance
- A minimum 20% down payment for no mortgage insurance
Energy Efficiency Mortgages (EEMs)
Energy Efficiency Mortgages are great for homeowners looking to install solar panels, improve heating and cooling systems, and overall, upgrade the energy efficiency of their homes. On top of the savings homeowners receive from putting these improvements into place, they will also often be eligible for tax credits for these system improvements.
In addition to the cost savings, using an EEM for upgrades will improve the value of the home and can help you switch into a fixed-rate mortgage if you’re currently in an Adjustable Rate Mortgage or have balloon payments.
Like the HomeStyle and HomePath programs, EEMs come with a minimum down payment of only 3% of the loan amount after improvement costs are included. For those looking to refinance, it is not always necessary to have equity in the property to qualify for a Streamline Refinance through this program.
To learn more about the Home Improvement Loan Program, fill out our quick 1-minute form to have a Mortgage Advisor contact you.