Expand Your Home-Buying Options With a Renovation Mortgage
With the tight market of fewer homes available, especially for first-time homebuyers, one solution is to broaden the search to include fixer-uppers. With a renovation mortgage, you can get one home loan that combines the purchase price with the cost of improvements.
Not enough affordable homes
Entry-level homes are scarce, whether new or used. Most gains in housing inventory have been in upscale homes or residential services of highest quality, according to Realtor.com.
The decline in entry-level new construction is stark: 36 percent of homes built in 2000 had under 1,800 square feet; in 2017, 22 percent did, according to the Harvard Joint Center for Housing Studies.
As for existing homes, resales of homes costing $100,000 to $250,000 were down 1.9 percent in October, compared with a year earlier, according to the National Association of Realtors®. The demand is there: Even with the decline, homes in that price range accounted for 40.2 percent of sales.
Faced with a shortage of affordable homes, it makes sense to consider buying and fixing up dwellings that are outdated or in need of repair. Unfortunately, many first-time buyers are not able to afford repairs and upgrades after purchasing a home.
Rest assured, buyers now have the option of renovation loans. The FHA 203(k) loan is insured by the Federal Housing Administration, and the HomeStyle loan, guaranteed by Fannie Mae, and VA for qualified buyers is insured by the VA. All loans cover most home improvements, whether major or minor.
The FHA 203(k) standard loan is used when a home needs structural work, involves non-safety related landscaping, or when the renovation costs exceed $35,000. This loan requires a minimum of $5,000 in repairs. You will need to use a HUD approved contractor and a lender qualified to complete an FHA 203(k) loan. The Homestyle renovation loans are for conventional buyers. Work can begin immediately after closing and must be completed within 6 months.
The VA recently approved a renovation loan for qualified buyers and non-structural renovation projects. The work for a VA renovation loan must be completed within 90 days after closing, use a VA approved contractor, and has a maximum budget of $35,000.
Murray & Associates with Keller Williams have partnered with a local lender that can complete these renovation loans.
The article Expand Your Homebuying Options With a Fixer-Upper Mortgage originally appeared on NerdWallet.