Financing a Fixer-Upper: What You Need to Know About Renovation Loans

03, October, 2019

Stop dreaming. Start fixer-upping! Find out how you can create the home of your dreams.

Family painting and doing renovations on their fixer-upper

Your dream home could be found in a property that just needs a little lovin’. These days those properties are known as fixer-uppers, and they’re a great solution for those who want to modify an existing home exactly to their liking. Seeing potential in properties that need renovations can be very rewarding and sometimes cheaper than building a home from the ground up or buying a home that’s ready to move in.
Believe it or not, there are mortgages that you can use to renovate properties! We’re here to make sure you understand which options are best for your situation and secure financing for your soon-to-be dream home. 

Is a Fixer-Upper Right for You?

You may be wondering if buying a home that needs renovations is the best choice for you. Ask yourself these questions before you venture into these kinds of properties to assess whether you’re prepared to renovate:
Do you have the financial resources? Make sure you have enough in your savings or earn enough to pay back your mortgage in addition to any renovation projects you need to make on your home. Being financially stable is extremely important!
Do you have the time to invest? These renovation and DIY projects can take a while, so make sure you have a flexible schedule and enough free time to get things done.
Do you have the necessary construction skills? While not completely necessary, it’s important to know how these projects will get done. Can you do any of it yourself? Do you have any willing friends or family members to lend a hand?
Will you have to contract out work? How much will that cost? If you don’t have any construction skills (if you’re in doubt, you probably don’t) you’ll need to hire people to complete your projects. Estimate how much this will be and see if it fits into your budget.
Will the renovation exceed the home’s market value? You may quickly realize you might be spending more than you bargained for after you start the renovation process.
Does the property make sense for your end goals? Think about where you want your family to be in a couple of years and how you want to plan for your financial future. Do you want this to be your forever home or do you think you’ll sell it soon to potentially gain from the renovations you’ve made?
Once you figure out whether buying a fixer-upper is right for your situation, it’s imperative that you receive the right home loan!

Financing Your Fixer-Upper

Since it’s extremely unlikely that you’ll be able to do all of the work yourself, do your research. Make sure you gather detailed estimates on all aspects of your renovations, including your plumbing, electric, and carpentry.
With these quotes, enlist the help of a local real estate professional to understand comps. Gather the hard data about similar area homes that have recently sold. This information is a reasonable measure about what the value of your fixer-upper will be upon completion. Lenders are almost certainly going to consider approximate values before giving you a loan.

FHA 203(k) Renovation Loans

If you need a little more flexibility with your mortgage, an FHA 203(k) Mortgage could be suitable for you. These products cover a wide range of construction projects and are available to those with a credit score of 580 or higher.
Homes more than one year old with repairs exceeding $5,000 may qualify and borrowers are generally required to hire a 203(k) professional to examine the project’s feasibility.

Fannie Mae HomeStyle Renovation Loans

For those who need more coverage for their fixer-upper, a Fannie Mae HomeStyle Renovation Loan could be the way to go. This loan program allows you to borrow upwards of 50 percent of the total for your renovations. Unlike a regular cash-out refinance or home equity line of credit, you can borrow against the projected equity of your primary residence, second home, or single-unit investment property!
To qualify, you must have a credit score of 680 or higher and sound debt-to-income ratios. You may also need to complete your renovations in 12 months or less.
Fixer-uppers can be an excellent pathway to owning your dream home. Make sure you conduct some vigorous research and talk to professionals who know what they’re doing! Get in touch with your local CrossCountry Mortgage loan officer today to find out which renovation loan is right for you!

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