Renovation Concierge Service
Let us show you how to renovate your home!
What is a Renovation Loan?
Found a home you almost love?
Are you interested in a home that needs repairs? Have you found a distressed home that needs repairs, upgrades, and much deferred maintenance? Renovation Lending options, such as FHA 203K and conventional renovation mortgages, often provide the precise tools required to purchase homes in this condition while financing the necessary or desired repairs.
Here's how it works: you find a home that needs work, you secure a renovation loan, and the funds for the purchase and repairs are held in an escrow account. As the repairs are completed and the funds are released, you will be able to transform the property into your dream home.
With current inventory constraints and limited market opportunities, renovating a home that others are not considering often presents a chance to capitalize on a great opportunity that your competition may be overlooking.
Amidst the current inventory constraints and limited market opportunities, choosing to renovate a home that others are not considering can be a game-changer. It's a chance to seize a unique opportunity that your competition may be overlooking, giving you a strategic edge in the real estate market and a sense of empowerment in your investment decisions.
One of the most significant advantages of renovation lending options is the freedom it offers. You're liberated from the often stressful and time-consuming process of negotiating with sellers for repairs. This relief can be a game-changer in your home-buying journey, allowing you to focus on the excitement of transforming a property into your ideal home.
First-time buyers can buy a fixer-upper and renovate it. This adventurous approach enables you to examine homes in almost any condition, think like an investor, and purchase as a traditional buyer, thereby opening a world of possibilities in your home-buying journey.
- Ask your Agent to show you homes that only investors are looking at
- The FHA Limited/Standard has a low 3.5% down payment
- 1-4 Unit Multi-Family Primary Home
- Fund all the repairs and Health & Safety Issues on one loan
- Buy/Refinance a home in almost any condition
- Check with your LO for loan limits in your area
- You can include all soft costs in the loan, such as permits, architectural and engineering fees.
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FHA 203k Limited
This program offers a flexible financing option for new and existing homes, allowing for remodeling, repairs, or updates up to $75,000. This loan empowers you to make the cosmetic repairs you desire. The Limited Renovation loan is used for smaller projects because HUD only allows up to $75,000 in repairs. This loan is for a primary home only, 1-4 units.
Sample Repairs
- Cosmetic remodeling of the kitchen or bathroom
- New flooring or carpet
- Painting the interior and exterior of a home. Making the appropriate repairs for peeling paint
- Plumbing/Electrical repairs
- Window and door replacement
- Septic/Well Repairs or Installation
- Modifying the home for older adults in your home
- This loan does not require a HUD Consultant.
- Luxury modifications are not permitted, including the construction of new pools, hot tubs, outdoor kitchens, gazebos, and photo murals.
What can be included in the loan:
- Total Soft/Hard Cost of Labor and Materials:
- Draw Inspection Fee (1 per contractor)
- Title Update Fee
- Permit Fee
- Contingency Reserve between 10-20%
- Supplemental Origination Fee 1.5% or $350, whichever is higher.
- Discount Points (on repair costs and fees)
Loan Example:
- Purchase Amount: $250,000
- Renovation Amount: $60,000
- Draw Inspections: 375 x 1 = $375
- Title update: $200
- Permit Fee: $500
- Supplemental Origination: $1,006
- Contingency: $6,000
- Total Renovation Amount: $68,081 + $250,000 Purchase= $318,081 - down payment + Upfront MIP
First-time buyers can think/buy like an investor...
FHA 203k Standard
This program offers a highly flexible financing solution for significant renovations, whether you're working in a new or existing home. It's not just for specific repairs- it's designed to cater to a wide range of renovation needs, giving you the power to transform your home as you see fit. Unlike the Limited Renovation Loan, there's no cap on the dollar amount*, giving you the freedom to tackle even the most extensive projects. However, there are some exclusions for luxury upgrades, such as new pools, hot tubs, outdoor kitchens, and satellite dishes. This loan is for a primary home only, 1-4 units.
Sample Repairs
- Remodeling bathrooms or a kitchen, including new built-in appliances
- Replacing roofing, gutters, and downspouts
- Adding a family room, bedrooms, or bathrooms
- Replacing flooring, tiling, or carpeting
- Completing a basement or attic conversion, or adding a second story
- Expanding or building a garage or carport
- Renovating a deteriorating property, such as repairing a chimney, termite damage, or structural problems
- Upgrading home systems, including plumbing, heating, air conditioning, and electrical
- Eliminating health and safety hazards, such as lead-based paint, mold, or asbestos
- Making the home accessible to people with disabilities (How many Veterans can you help?) This program also supports the installation of safety and accessibility features, ensuring your home is a secure and comfortable environment for all. ADA upgrades for the aging population
- Installing a well or a septic system.
- Adding, or repairing siding or repainting
- Installing energy-efficient windows or doors
- Repairing an existing swimming pool
- Build an accessory dwelling unit for your parents or rent
- A HUD Consultant, a professional who ensures the project meets all HUD requirements, is required on this loan.
- Some luxury modifications are not allowed, such as building a new pool, and you can do any required repairs to an existing pool, hot tub, outdoor kitchen, gazebos, and photo murals
- You can include up to six months of mortgage payments in the loan if the home is not habitable after closing, meaning you won't have to make these payments out of pocket.
- * Ask your Loan Officer about loan limits in your area
- And much, much more… This loan is designed to be versatile, accommodating a wide range of renovation needs.
Sample Repairs
- Cosmetic remodeling of the kitchen or bathroom
- New flooring or carpet
- Painting the interior and exterior of a home. Making the appropriate repairs for peeling paint.
- Plumbing/Electrical repairs
- Window and door replacement
- Septic/Well Repairs or Installation.
- Walk-in bathtubs
- Wider doors and ramps leading to the house.
- This loan does not require a HUD Consultant.
- Some Luxury modifications are not allowed, such as building a new pool, hot tub, outdoor kitchen, gazebos, and photo murals.
- Modify your home with ADA upgrades to enable a better quality of life.
What can be included in the loan:
- Supplemental Origination 1.5% or $350, whichever is greater, based on the renovation amount.
- Contingency Reserve 10-20%
- Inspection Fees: 5 inspections @ $375
- Title Update Fee: 5 updates @$200 each
- Permit fees
Loan Example:
- Purchase Amount: $500,000
- Renovation Amount: $100,000
- Draw Inspections: $375x5= $1,875
- Permit Fee: $500
- Title Updates 5 @ $200: $1,000
- Contingency @ 10%: $10,000
- HUD Consultant $1500
- Supplemental Origination Fee $1,573
- Total Renovation Amount: $116,448 + $500,000 Purchase= $616,448 - down payment + UFMIP
Include all your Luxury Upgrades!
Conventional Renovation Program Fannie and Freddie - Primary, 2nd, and Investment homes.
Homeowners are embracing the freedom to renovate like never before. With a Conventional Renovation loan, they’ll have the financial power to embark on various renovation projects, from essential repairs and energy updates to landscaping and luxury upgrades. This loan can be the key to transforming a house into a dream home or reviving an older home to its former glory, putting the power of renovation in their hands.
Envision the endless possibilities with a Conventional Renovation loan. Your customers can finance the renovation or rehabilitation with conventional purchases or a refinanced home loan. The loan-to-value (LTV) ratio is calculated based on the proposed project, providing them with increased purchasing power and a wide range of options to personalize their home. This loan is not just about financing; it's about bringing their vision to life and making their home truly their own.
This program can be used for primary homes, second homes, and Investment properties.
Sample Repairs
- All repairs from the 203K Standard
- New Pools - or Fixing a Pool
- Outdoor kitchens
- Hot tubs, gazebos
- ADA for your older parents or rent it out.
- Add new square footage to the home.
- The possibilities are endless.
What can be included in the loan
- Total Hard cost of Labor and materials
- Architectural Fee
- 203(k) Consultant Fee
- Draw Inspection Fees (4)
- Final Inspection Fee (1004D)
- Title Update Fees - Permit Fee
- Contingency Reserve Fee 10-20%
- Up to 6 Months Payment Mortgage Reserves (PITI)
- Reno Draw Management Fe
Loan Example:
- Purchase Amount: $500,000
- Renovation Amount: $100,000
- HUD Consultant Fee $1,500
- Draw Inspections: $375x4= $1,500
- Title Update 5 @ $200= $1,000
- Permit Fee: $1500
- Renovation Administration: $750
- Contingency @ 10%: $10,000
- Total Renovation Amount: $116,250 + $500,000 Purchase= $616,250- down payment
203K or Conventional Renovation Loan?
The 203k and Conventional renovation allows you to finance the purchase/refinance and renovate and improve the home with a single loan. Both mortgages will enable you to borrow against your home’s future improved value, increasing your borrowing power compared to a second line of credit or HELOC.
Have you found that home you almost love? The FHA, VA, and Conventional renovation will allow you to buy a fixer-upper or just a home you want to renovate. You can either buy a move-in ready home and do repairs and upgrades little by little with your out-of-pocket money or do it all at once and renovate after you close your home purchase.
There are some factors to consider when deciding on an FHA/VA or Conventional renovation loan.
- These programs base the value on future value, considering all the repairs as if they were done already at the loan's closing.
- The FHA 203k might be a better credit and down payment option if you have a lower credit score. The conventional renovation usually requires a higher credit score.
- If you want to do any luxury upgrades, such as adding a pool, outdoor kitchen, gazebos, and landscaping, the conventional renovation is probably your better option.
With all renovation loans, the goal is to have any repairs/upgrades to add equity to the home based on the future improved value appraisal. However, it's important to note that some repairs/upgrades are functional, such as replacing an HVAC or fixing or adding an AC. These functional repairs may not add any or very little “future improved value” since they require a functional home. Understanding this can help you plan your renovation budget more effectively.
When the repairs are functional, or you think they will not add as much value dollar for dollar, then the best loan option is an FHA 203k loan. Since we know that dollar-for-dollar worth of repairs will not necessarily add equity to the home’s future value, the 203K loan allows the lender to use a formula of 110% of the after-improved value.
For example, if your purchase is $500,000 and renovation is $75,000, we would assume the future value appraisal will at least be $575,000. If the future value appraisal is lower and you buy with a conventional/VA renovation loan, you might need to come up with the difference. If the future value appraisal is $550,000 on a traditional/VA, you are stuck negotiating or bringing in the additional $25,000. If you are financing the same scenario with a 203K loan, we can multiply the future value of $550,000 x 110%, and the loan could go as high as $605,000, but we only need $575,000, so you will rarely lose a deal with a 203k loan using the 110% formula.
Marco Montano | NMLS 404303 VP-National Renovation Manager First Community Mortgage NMLS 629700 www.firstcommunitymortgage.com Email: Marco.montano@fcmhomeloans.com Phone: 720-710-7400
