Renovation Financing

With this type of private loan, you can either buy a home that needs improvements or refinance with a new mortgage in order to make updates to your current home. Unlike the FHA 203(k) loan, this can be an investment property or second home, though these require a higher downpayment. The funds for the repairs are held in an escrow account and are paid directly to the pre-approved certified contractor. You’ll be required to make at least a 5% downpayment, and all financing will be based on the post-renovation value of the home. If you put down less than 20%, you’ll still need to take out Private Mortgage Insurance (PMI).

This government-insured loan has a lower minimum credit score than the HomeStyle® loan as well as a lower downpayment requirement – as little as 3.5%. You’ll be required to hire a qualified 203(k) consultant who will be involved from the beginning planning phase to the very end of the renovation. This is actually a benefit, as the consultant will serve as a project manager and help make decisions, assess costs, and ensure the work is being done in a timely fashion. Like any FHA loan, you’ll be required to pay the upfront mortgage insurance premium of 1.75% as well as the annual premium around 0.85%.

This type of loan is capped at $35,000 and is designed for cosmetic improvements or upgrades rather than a full fixer-upper. It is not meant to be used for homes that have structural or foundational problems. If you can accomplish the improvements you need for under $35,000, this may be the right loan for you.