Can I Get a Mortgage to Include Renovation
When you’re purchasing
a house, it’s possible at times that the house might need a lot of work to make
it habitable. Although some people look for a house that’s ready to move in,
some people like to personalise the place for themselves. Renovations or remodelling
can often be expensive. Most of the time, it isn’t possible for the buyers to
pay for the renovation costs out of their pockets.
However, it isn’t
impossible to get the money required for renovating your house. If you have a
proper estimate and a guarantee that your home will have a better market value
post-renovation, there are many ways that you can get a renovation cost
included in your mortgage.
Availing a Home Loan
Most buyers prefer to go for a home
loan to purchase a new house. Unless you intend to sell your own house to buy
the new one, you likely won’t be able to afford one without a loan. While going
for a home loan, the lender will only be able to finance up to 90% of your
property value. The property itself will be held as a mortgage by the lender.
If you ask the lender to add renovation costs to your mortgage, it might not be
possible. This is because the costs, coupled with the purchase cost, will go
beyond the property’s market value. The lender will likely refuse to add the
cost of the renovation to your mortgage.
Habitable property
If your property is deemed as liveable, you might still be able to add the cost of renovation to the mortgage. In this case, the lender will withhold a part of the loan and only release them when the repairs have been completed. The property will be inspected for its market value, and the funds will then be issued. This will only apply to properties with non-structural repairs and changes. Major renovations will not come under this method.
Non-habitable property
In case your property
is non-habitable, there will be very few lenders who will agree to fund your
property. However, you might be able to find specialized lenders who can assess
your property thoroughly and provide funding in instalments to carry out the
renovations. Every instalment will be released only after thorough inspections
by professionals or architects.
FHA 203(k) loan
The Federal Housing
Association(FHA) provides specialised 203(k) loans under the US Government.
These loans offer you the amount for both purchase and renovation of your house
under a single mortgage. The repayment can happen as per any other housing
loan. The process for applying for a FHA 203(k) loan is time-consuming and
subject to heavy scrutiny and analysis of the property and feasibility of
expenses. There are 2 types of FHA 203(k) loans.
Standard 203(k)
A standard 203(k) FHA
loan is provided for heavy home renovations, remodeling, extensions etc. The
property need not be habitable for this loan. A standard 203(k) provides a
whopping 110% of the property value after renovation as the loan amount. The
property is held as a mortgage with the lender’s repayment. The loan approval
is subject to the bids by contractors, professional survey and assessment, and
an assessment of your credit history. This loan covers structural changes to
the house, such as the addition of rooms, complete rehabilitation of the house,
etc.
Limited 203(k)
A limited 203(k) FHA
loan is provided for small-term repairs on the property to be purchased. The
property should be habitable to be approved for this loan. A loan amount of up
to $35000 can be provided for Limited 203(k) loans. 50% of the amount is provided
immediately upon approval, and the remaining amount is provided only after the
end of the repairs upon proper assessment. This loan will only cover small
repairs and changes. This loan will not cover structural changes.
A 203(k) loan is the
ideal solution if you wish to include your renovation costs into the mortgage.
However, bear in mind that you will need to do a proper assessment of your
property and get an accurate cost on the renovation model. You should also be
prepared with an estimate of the property value post-renovation.
Home equity loan for
renovation
Home equity means the
value of money that is in excess of what you owe on the mortgage. This means
that the value of the house is greater than what you have left to pay on the
mortgage. This difference is called Home equity. The lender can provide you
with this difference in the form of a Home equity loan. This loan can be
utilised for any purpose. You can finance your Home renovation on the same
mortgage through this form of equity. The Interest rate charged on this Home
equity is considerably lower as well. The property will be held mortgage until
you pay off the entire loan amount.
Refinancing
Refinancing is an
excellent way to fund your home renovations if you want to do repairs on a house
you already own. It is very simple to apply for a refinancing mortgage for your
property. In this case, you don’t need to be residing in the property itself if
you choose to go for major structural changes. You can also opt for an FHA
203(k) refinancing as they will be able to provide up to 97% of the renovation
costs for your home.
Other ways to fund
renovation costs
There are different ways that you can use to get funding for your home renovations and you visit LaonAdvisor if you want to compare renovation loans online. If your lender is unable to add your renovation costs to your mortgage, you can opt for other forms of credit. You can apply for Personal loans, credit card, or line of credit to avail of the renovation costs for your investment. However, make sure that you will be able to pay for both the credits simultaneously.
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