Home Renovation Loans

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Homebuyers looking to put their own touch on a home have turned to popular renovation mortgage loan products.  This loan type is also helpful when home inventory is low in your area, like Williamsport, PA and the Lycoming County region and it’s difficult to find exactly what you need in a home.  Another use for a renovation loan is a refinance to mortgage the funds needed to repair an aging home.  A renovation home loan will allow for everything from structural remodels to new paint.

For protentional borrowers without the means to purchase a home and fix it up, a renovation home loan offers the chance to combine their repairs into their primary mortgage.  Renovation loans come in two main forms, the FHA 203K program, and FANNIE MAE’s HomeStyle renovation mortgage.  Below you will learn the basics of each product, but discussing your options with a mortgage professional, such as a mortgage broker, is key.

FHA 203K: PRODUCT HIGHLIGHTS

FHA 203K renovation mortgages have the same guidelines as all other FHA mortgages, with a few key differences related to the scope of work.  Factors such as seller assistance towards closing costs and debt-to-income ratios remain the same.  There are two 203K mortgage options based upon what needs to be done to the subject property.

• Seller Assist: Up to 6%
• Agency: Federal Housing Administration
• Max Loan Amount: Depends on the home’s location (see link for map below)
• Mortgage Insurance Premium: Fluctuates, but starts at 0.85% of the loan amount with minimum required down payment; continues for the life of the loan if less than 10% provided as a down payment
• Upfront Mortgage Insurance Premium: Required 1.75% of the loan amount; can be financed
• Max Income: No restrictions
• DTI Requirement: : 43% but varies by lending bank and can be much higher with an automated underwriting approval. (see link below for more information on automated underwriting)
• Credit Requirement: Fluctuates by lending bank and can be lower with an automated underwriting approval.
• Down Payment Requirement: As little as 3.5%

STANDARD 203K

• Required for structural repair/modification: A standard 203K allows for the more intense repairs or renovations with a $5,000 minimum budget
• A licensed contractor must provide detailed bid: This allows the lending bank, appraiser, and 203K consultant to analyze the project thoroughly.  The contractor must be licensed and insured and will need to fill out additional paperwork to be approved.  The contractor’s funds are held in an escrow account, a percent paid upfront, and the remaining balance when completed.
• Borrower must hire a HUD-approved 203K consultant: The homeowners are required to hire a 203K consultant for all standard 203K projects.  Their fee is generally six hundred dollars plus additional fees such as mileage.  They analyze the project’s viability through inspecting the property and review of the bids.  During the project, the consultant visits the property and determines if the work is satisfactory and communicates with the lender to release funds from the escrow account to the contractor. 
• Max Loan-to-Value: up to 110% of the amount the appraiser deems the home is worth after renovations, or the purchase price of the home plus the renovation costs (the lesser amount) minus your minimum 3.5% low down payment
• Ideal for: Creating an open floor plan, adding square footage, adding an attached or detached garage, removing or repairing an in-ground pool, foundation repairs, rebuilding (if the foundation still remains)
• Restrictions: No pool additions; Home’s age is at least 1 year

LIMITED 203K

• Maximum budget: A limited 203K’s maximum renovation budget is $35,000 with no minimum budget
• 203K consultant not required: The product is designed for non-structural repairs or renovations, thus a HUD-approved 203K consultant is not required.
• Max Loan-to-Value: The lesser of two: the purchase price of the home plus the renovation costs, or a maximum of 110% of the appraiser’s opinion of the home’s value after renovations, minus the required minimum 3.5% low down payment
• Ideal for: decks, roof repair or replacement, heating or cooling systems, window or siding, plumbing and electrical upgrades, kitchen remodels including appliance, finishing basements, flooring
• Restrictions: No pool additions; Home’s age is at least 1 year

FANNIE MAE’s HomeStyle Renovation Loan: PRODUCT HIGHLIGHTS

Flexibility is the main advantage of this renovation product.  FANNIE MAE’s HomeStyle renovation loan can be a better option for those that qualify.  While it is more flexible, it is also more restrictive in minimum credit score and higher down payment than FHA’s similar product.  Where an FHA 203K loan is strictly for your primary residence, and does not allow for “luxury” renovations, FANNIE MAE’s HomeStyle product has no restrictions on the type of improvement.  Another advantage is its lack of an upfront mortgage insurance premium and the ability to cancel private mortgage insurance at 80% loan-to-value.

• Seller Assist: Up to 6%
• Agency: FANNIE MAE
• Max Loan Amount: Conforming loan limits based upon the subject property’s location
• Mortgage Insurance Premium: Fluctuates based on a few factors but generally between 0.5% and 1% of the loan value; required with less than 20% down payment
• Upfront Mortgage Insurance Premium: None
• Max Income: No restrictions
• DTI Requirement: 43% but varies by lending bank and can be higher with an automated system approval.
• Credit Requirement: Loan-to-value dictates the credit score requirements for this mortgage product; If less than a 20% down payment is available, the minimum score is 700; If more than 20% is put down, the minimum credit score is 680.  Investment properties require a minimum score of 720.
• Down Payment Requirement: As low as 5%

HOW DO I APPLY?

Principle Home Mortgage will discuss the various loan programs and work with you to decide upon your best option.  To apply for either type of renovation loan, you will need 2 years tax returns and W2s, 2 months bank statements, 2 forms of ID, and 30 days of paystubs.  If you are self-employed, these requirements will vary slightly.  To determine if a renovation mortgage is your best option in Williamsport, PA and the Lycoming County region, reach out to Principle Home Mortgage at (814) 308-0959 to discuss your home financing needs.

RESOURCES

Apply online with Principle Home Mortgage

Learn more about FANNIE MAE HomeStyle Loans

Learn more about FHA 203K loan