In the past, those planning to buy a home had to apply for separate loans to cover the cost of the home purchase and the renovations it would require. Many times, a newly purchased home would have some serious problems that the new buyer would need to take care of shortly after their purchase or even before they move in.
How it Works
They would have to take out multiple loans to cover all that, because a mortgage loan would not cover the cost of the renovations. They would not only have to apply separately for at least two different loans, but hope their rates were good for both of those loans and that they were approved for what they needed. That means that there would be a lot of hassle involved, but it is necessary because the costs it covers would be necessary
Thankfully, it’s no longer necessary to split up the cost of a new home between mortgage and repairs. A renovation loan covers all that, including the cost of repairs into the loan use dot pay for the house itself.
This cuts down on paperwork, the hassle of an approval process and the cost of the loans themselves. Many people would avoid buying houses that would be classified as fixer uppers just because of the problems caused by separate loans. Now, any kind of home can be considered if this loan is available. The Department of Housing and Urban Development, also known as HUD, has a set of requirements that potential home buyers must meet before they become eligible for one of these loans, however.
Your credit score, level of income, debt-to-income ratio and other factors determine how eligible you are for the loan. You also have to prove that the home you are planning to buy needs to have some renovations done. If you can do all that, then you will be approved for the loan, but you should consider the rates it offers and compare them to the rates you would pay on separate loans. In most cases, you pay less for the renovation loan, but it is always a good idea to look at your options and make sure you are saving as much money as possible. If your credit score is particularly good, your rates could be better with separate loans.
When you are approved for a renovation loan, the lender will inspect the house and the amount of repairs that have been done to date. How much you have to pay out for your loans will depend on how much work has been done on the house. That gives you some flexibility and ensures that your home’s repairs are being taken care of in a timely manner.
How to Get One
An FHA renovation loan is offered by FHA approved lenders, not the Federal Housing Authority, which generally offers loans to people who cannot afford loans from other lenders or would not qualify for other types of loans. With the renovation loan, you will be able to purchase a home that’s being sold for less than market value and not worry so much about the kind of condition it is in that warrants that lower price tag.