Borrow based on what the house is expected to be worth after the home rehab is completed.
If you’re buying a home that needs a little TLC or complete renovation, a typical fixed-rate mortgage isn’t going to help you pay for repairs. The bank won’t approve you for a $300k loan to buy a house worth $200k. There are two loan programs that can make your dream of rehabbing a fixer-upper a reality: the Federal Housing Administration’s 203(k) mortgage and Fannie Mae’s HomeStyle Renovation mortgage.
FHA 203(k) mortgage
This type of financing is ideal for borrowers who either have little money for a down payment or who have an average or slightly below-average credit score. By combining a construction loan with your home mortgage, an FHA 203(k) loan limits your loan closing costs because it’s just one loan and simplifies the home renovation process. FHA 203(k) loans are backed by the federal government, and are typically given to buyers who want to purchase a home and perform upgrades, repairs, remodel or customize to their needs and wants.
advantage of the opportunities supported by this program, including:
- Those interested in purchasing a fixer-upper home that’s in need of upgrades, repairs, or larger renovation projects, even if the home is being sold “as is”.
- Those who are purchasing a foreclosed property from banks, housing agencies, and government-sponsored enterprises, as well as short-sale properties.