How Do You Get a Home Loan for a Fixer-Upper?

Purchasing a home of their own is a dream for many people. But the high price of property often means that it can take a long time and a lot of saving to own a home. To save money, many prospective buyers decide to look for a property that needs some TLC. But getting a home loan for a fixer-upper has some nuances to keep in mind.

Securing a mortgage for a fixer-upper is a great way to get into a property that you can afford. Buying a home that needs a little attention is also the perfect way to make the home uniquely yours as you do updates, upgrades, and renovations.

For any home loan needs, the expert team at TwinCity Lending is here to help. Our concierge service ensures you get the best rates, service, and closing process.

Why Choose A Fixer-Upper?

Choosing a house that requires work can seem daunting, but it can also offer a host of benefits:

  • A Lower Price – If you have your heart set on a particular location, but the prices are out of your range, then a fixer-upper could be the perfect solution. Due to their less-than-perfect state, they often carry prices below market rate. The lower price point makes them a fantastic option. You could find yourself living in your dream location for a fraction of the cost.
  • An Older Home – In general, fixer-uppers tend to be older properties. This is perfect if you are looking for a space that is bursting with character and original items. Rather than designing a house that looks like all of its neighbors, you can restore the period features such as windows, cornices, and super-high ceilings. It is exciting to bring charm and majesty back to a faded beauty.
  • A Chance to Make It Your Own One of the significant appeals of a fixer-upper is the opportunity to put your spin on a property, and make it feel like your home. This chance is particularly exciting if you are planning to stay for the long term. You can design your perfect dream home right from the outset.  

What Are Your Options?

When deciding how to get a home loan for a fixer-upper, many buyers opt for a renovation loan. This type of loan package is beneficial when you want to buy a property that needs some work. It allows you to finance the purchase of the home, as well as the essential improvements required into one loan. You only have one monthly payment to cover the mortgage and renovations.

This streamlined home loan package is an ideal way to get started on homeownership without a considerable outlay of cash.  Some of the most popular renovation loan options include:

  • FHA 203(k): This choice comes through the Federal Housing Association and is accessible to those with a lower income and credit score. The FHA 204(k) is suitable for most home improvement projects. You can use the funds to carry out both structural and cosmetic renovations. Even better, work can begin as soon as you close.                                                                                                                                               

It is important to note that these loans are only suitable for primary residences. You will not be able to submit an application for renovations on a rental property or second home. There are also limitations on what you can do with the funds. Luxuries such as a pool or extreme landscaping do not qualify for using the loan money.

There are two types of 203(k) loans: limited and standard. The limited version is available to use for any renovations up to $35,000, as long as they don’t require major structural work.                                                                                                   

The standard option covers projects with budgets over $25,000 or where significant structural improvements are necessary. For this route, you must work with a HUD consultant. They will help the homeowner analyze bids and oversee all inspections.

  • VA Renovation loan: The loans offered by the Department of Veterans Affairs went through a recent update. Now they are eligible for use in the purchase and renovation of a home. Note that for this type of loan, you will need a VA-approved contractor, and there may be a construction fee attached to the loan.
  • Fannie Mae HomeStyle: A HomeStyle loan requires a higher credit score than the FHA 203(k) loans. But almost any home improvement is eligible, including landscaping or even installing a pool. With Fannie Mae backing, this loan is a popular choice if you are planning a total luxury overhaul of a property.
  • CHOICERenovation Loan: Guaranteed by Freddie Mac, this option carries a lot of benefits. It is ideal for those seeking a lower-cost home to purchase since it has a low down-payment requirement. Borrowers can even earn a down payment by making repairs themselves before closing.                                                                                     

A renovation loan is a perfect way to ensure that you can meet all your financial obligations while still working on developing and building your dream home.

How Do I Get Started On a Home Loan for a Fixer-Upper?

If you decide to head down this route, the first step is to talk with your lender. It is best to work with a mortgage broker rather than a loan officer who works with only one institution. The broker will be able to offer you more options for your financing needs. They will walk you through your options and help you determine the best loan for your needs. 

Once you have a plan with your lender, it’s time to go house hunting. Be sure you have an experienced real estate agent who can help you through this process. And unless you plan to do the work yourself, it’s a good idea to have a contractor available to give you some advice and input as well. 

When you are in contract on a property, you will likely need to obtain estimates for the work to be done. Sometimes this information is necessary to close the transaction. 

TwinCity for All Your Lending Needs

No matter what stage of home buying you are in, the friendly staff at TwinCity Lending is here for you. We can help you navigate FHA and VA loans, as well as home equity and jumbo loan packages. Reach out today to get started.

 

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