Purchasing a home with a conventional mortgage is not for everyone. If you can’t afford a large down payment or want to do renovations before moving in, there are several programs offered by Fannie Mae and the FHA that can better fit your situation, including HomePath Loans, HomeStyle Loans, FHA 203k Rehabilitation Loans, and Energy Efficiency Mortgages.
HomePath loans are great for people who know the home they want to get will need renovations. This program covers repairs and improvements up to $35,000. The money for these repairs will be put into an escrow account that you can pull from for repairs while keeping those costs bundled in the total loan amount. By doing this, you still only have one monthly payment. Also, unlike with many other renovation loan programs, you have complete oversight and control of dealing with contractors on any work that needs to be done.
To qualify for a HomePath loan, you need a minimum down payment of 3% and a minimum credit score of 620 if you’re self-employed or 660 for regular employment situations. While this program is generally used for primary residences, it can also work for second homes with proper approvals.
Like HomePath loans, this program is used for home improvements. But, unlike HomePath loans, the HomeStyle program can be used for adding luxury expenses such as pools and spas. Additionally, the total amount you can add to the loan for these costs is 50% of the appraised future value of the home after all renovations and repairs have been completed.
The initial loan-to-value (LTV) ratio used for this program is based on the estimated value of the property after all renovations have been made. Because of this, it is easier for people to qualify for this program than for other comparable options. Also, these loans rarely require mortgage insurance, which lowers your monthly payment, making this option even more affordable.
FHA 203k Rehabilitation Loan
Much like the HomePath loan program, the FHA 203k Rehabilitation Loan option combines your principle and repair expenses into one lump sum, so you only have a single monthly payment. This program, however, limits how extensive repairs may be. Major structural issues, such as a cracked foundation, are excluded from costs covered by this program. Issues such as electrical, cosmetic, and plumbing are covered.
FHA 203k Rehabilitation Loans require a minimum down payment of 3.5% and often come with lower interest rates than HomeStyle and HomePath loans. In order to qualify for this program, you need a minimum credit score of 640. For basic home repairs and renovations, this is an excellent loan option.
Energy Efficiency Mortgages
Energy Efficiency Mortgages (EEMs) are made for renovations, additions, and repairs used for improving your home’s energy efficiency. This can mean installing solar panels, changing out all the lighting, adding double-paned windows, and adding more efficient heating systems. All of these costs will be included in the total body of your loan, once again eliminating the need for multiple payments each month and saving you money.
EEMs require a minimum 3% down payment and you can choose which contractors you’ll work with for these renovations. In addition to having a low down payment and having these costs rolled into your loan, you’ll also be saving money by lowering your monthly utility bills. These improvements can also greatly add to your home’s value, which can, in turn, give you additional equity or a better price should you ever decide to sell the home.
To see if you qualify for an FHA 203k Renovation Loan, fill out our quick 1-minute form to have a Mortgage Advisor contact you.