If you have been living in your home for quite a while, you probably have already considered making home improvement projects at least once or twice.
It would not only give your home a boost, certain repairs or renovations can potentially add equity to your home. This can come in handy if you ever decide to sell your property in the future.
While renovations are fun experiences for homeowners, it can also get exhausting and most importantly, it costs money. Thankfully, there are a few home improvement loans that homeowners can try and qualify for.
Before, homeowners can easily get a second mortgage to cover home renovations but this is something homeowners don’t get anymore. Instead, they make use of these financing options that are intended specifically for this purpose.
To date, the most common home improvement mortgages that interested homeowners can take advantage of are Fannie Mae’s HomeStyle loans and FHA’s 203(k) mortgages.
Here is everything you need to know about these home improvement mortgages.
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Fannie Mae’s HomeStyle Loans
Existing homeowners who wish to do repairs in their homes can make use of Fannie Mae’s HomeStyle loans. This mortgage comes in a limited cash-out refinance type. It refinances your home and includes all the needed renovation costs in the balance.
Borrowers who are qualified are either home buyers, non-profit organizations, or investors. As for the property, Fannie Mae allows properties of up to four units and it should be the borrower’s main residence.
Second homes are also considered as long as it’s a one-unit property. As for renovations, qualified borrowers are limited to up to 50 percent of renovation costs. This refers to the “as completed” appraised value.
Borrowers who wish to make DIY renovations can also qualify. If they do, they are allowed to get financing that does not go over 10 percent of the “as completed” value.
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FHA 203(k) Loans
Guaranteed by the FHA, 203(k) loans are for borrowers who wish to qualify for home improvement financing with flexible guidelines. That way, qualifying is easier to achieve.
Borrowers don’t need to have stellar credit to be considered eligible. After all, FHA guarantees the loan. That means lenders will have less worry in case the borrower’s mortgage goes into default.
Properties that are considered eligible are one- to four-unit properties that are either owner-occupied or from non-profit organizations. Condominium and townhome owners can also qualify for the mortgage to cover interior improvements.
As for limits, qualified borrowers can get financing of at least $5,000 up to location-specific loan limits set by FHA. On the other hand, borrowers planning to make smaller home improvement projects can take advantage of the Streamlined FHA 203(k) mortgage option.
The streamlined option allows borrowers to borrower less than the FHA 203(k) loan minimum. The process is also easier than that of a standard 203(k) loan.
If you want to take advantage of FHA’s 203(k) loans, keep in mind that qualified borrowers will have to pay mortgage insurance premium. Other than that, Other than that, an ongoing fee will also be added in your monthly payment.
It’s up to you
Remember that each home improvement loan is unique. Therefore, it’s important that homeowners should weigh their options first before deciding which home improvement mortgage to go for.
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