FHA 203(k) and FannieMae HomeStyle mortgage insurance enables homebuyers and homeowners to finance both the purchase (or refinancing) of a house and the cost of its rehabilitation through a single mortgage or to finance the rehabilitation of their existing home.
Renovation loans fill a unique and important need for homebuyers. When buying a house that needs repair or modernization, homebuyers usually have to follow a complicated and costly process. The interim acquisition and improvement loans often have relatively high interest rates, short repayment terms and a balloon payment. However, renovation loans offer a solution that helps both borrowers and lenders, insuring a single, long term, fixed or adjustable rate loan that covers both the acquisition and rehabilitation of a property. Renovation loans save borrowers time and money. They also protect the lender by allowing them to have the loan insured even before the condition and value of the property may offer adequate security.
The extent of the rehabilitation covered by renovation loans may range from relatively minor to virtual reconstruction. The types of improvements that borrowers may make using renovation loan financing include:
- structural alterations and reconstruction
- modernization and improvements to the home’s function
- elimination of health and safety hazards
- changes that improve appearance and eliminate obsolescence
- reconditioning or replacing plumbing; installing a well and/or septic system
- adding or replacing roofing, gutters, and downspouts
- adding or replacing floors and/or floor treatments
- major landscape work and site improvements
- enhancing accessibility for a disabled person
- making energy conservation improvements
Renovation loan consultants play an integral role in the loan process both pre-escrow and during renovations. In order to close on the loan, a prospective buyer must receive a required documentation prepared by an approved consultant. This documentation includes: Work Write-up & Cost Breakdown, Draw Schedules, Identity of Interests, Permit Requirements, etc. This package is sometimes reffered to as the Specification of Repairs.