If you have read my Blog before you know it’s my passion to spread the word about renovation mortgages ! It’s the best kept secret in home buying. Buy the home with a small down payment and add funds into the same mortgage to update and repair the home right after you buy it ! All without the need to use your own money for repairs. The loan provides funds to remodel. It’s just that simple. Never considered a home rehab project before ? Never thought about buying a fixer upper ?
Here are what renovation mortgages offer and how they can work for you as a First Time buyer. It may be a smart choice to consider a rehab as a first time buyer. See below:
- The two rehab loans are called HomeStyle and FHA 203K
- Both are 30 year term loans allowing you to do the rehab up front and realize the potential increase in value now rather than do the rehab piecemeal over several years as your savings may or may not allow
- These loans work well because the future, “after improved” value is calculated up front giving you the knowledge of projected future finished value while the loan is being approved- you know how much value the remodeling will add which is used to approve the mortgage
- Down payment can be as little as 3.50 % on 203K and 5 % on HomeStyle for qualified borrowers
- The down payment is calculated on the sum of the purchase price itself plus funds needed for rehab
- You can even roll in up to 6 months of mortgage payments into the loan if it will take that long to finish all the renovation before you can move in – no need to pay double for housing costs during rehab
- Each loan automatically protects you against cost overruns or extra rehab costs not anticipated, but occur later by adding 10% to 20% of the rehab budget in as an extra “emergency reserve” of dollars just in case
- You can buy a condo or a house using HomeStyle and add dollars to remodel it, or buy a 2, 3, or 4 unit property with either mortgage as long as you live in one of the apartments
- You can do most any sort of repairs needed: mold removal, new kitchen & baths, add a room, new heating & cooling, finish a basement, install new appliances and on and on
- As a first time buyer you may be considering a condo but instead look at the opportunity to buy a single family house to remodel or a 2 flat building- there may be equity to be created in the process ( read my Blog on 2 units versus a condo at https://perryfarella.com/2016/03/how-to-buy-finance-a-2-unit-property-with-a-203k-loan/ )
- A foreclosure or estate sale offers a good chance to buy a property others are passing by due to its unappealing condition- these types of properties often sell at a discount and are perfect for a first time buyer rehab
As a first time buyer it makes financial sense to consider a rehab project rather than looking for a fully updated property or a brand new one. If you have an interest in putting your own design choices into your home and are willing to work with a general contractor to achieve it, then please consider it!
I hope this post has been helpful and encouraging to those that may have thought a Renovation project was too complex or beyond their ability to manage. My intent is always to inform, educate, and generate discussion. Please call me or email me directly or visit my website for more information on renovation loans. I welcome your comments and questions!
Thanks for giving us hope through this article that money can be added to rehab for first time home buyers in just one mortgage. It is good to know that a down payment can be as little as 3.50%. Another thing to consider would be consulting a professional to get advice and tips to ensure the right decision is being made.
Great summary Perry!! Thanks for taking the time to provide a clear summary of all the different rehab loan options