Renovation mortgages a good fit for some buyers
NEW YORK – Feb. 9, 2016 – Buyers who face a limited inventory of existing homes for sale may not be able to fulfill every desire on their wish list. However, a home fixer-upper can be remodeled to suit their personal tastes – from granite countertops to paint colors and flooring – and selected mortgage loans allow them to roll the cost of repairs into their monthly mortgage payments.
Home renovation sounds like a daunting and pricey task to many buyers who dream of a perfect house they can simply walk into, but a remodeling loan – basic mortgage to cover the purchase plus additional money to make repairs – can sometimes fulfill dreams if buyers are willing to wait a bit before moving in.
Lenders increasingly tout their mortgages that allow borrowers to purchase a house and renovate it under one loan. FHA's 203K and Fannie Mae's HomeStyle loans are two popular options for homebuyers who want to finance a home and renovate in one lump sum.
With renovation financing, lenders consider the purchase price (supported by an appraisal) and then add onto that price the costs of the proposed improvements, using builder cost estimates or architectural plans. The appraiser then determines what the value of the home would be after the improvements are made.
The financing, therefore, is based on the "after improved" value.
"A lot of first-time homebuyers are bargain hunting, but thin inventory does not give them much opportunity," says Matt Gratalo, loan originator at HomeBridge Financial Services. "Renovation financing lets them buy the ugly duckling house at a discount and turn it into the neighborhood swan."
Current homeowners can also refinance using renovation financing to make improvements to their home.
Source: "The Renovation Revolution: 203K and HomeStyle Mortgage Loans," Forbes.com (Jan. 19, 2016)© Copyright 2016 INFORMATION, INC. Bethesda, MD (301) 215-4688