Revitalizing with a Renovation Loan
The economic impact of the pandemic has led to an increase in mortgage forbearances. While many of these homeowners will resume their mortgage payments and continue building equity, others may end up in foreclosure.
As these homes are listed for sale, they may present an opportunity for buyers in a challenging market. Bank-owned properties are unlikely to be in pristine condition, but shoppers who see the potential in a foreclosed home and understand their renovation options may enjoy more house-hunting options than most.
Expand Your Search
Move-in ready is convenient, but any home that meets that bar will attract a lot of attention in a seller’s market. Most buyers will be forced to make some compromises and settle for a less than perfect home. However, one strategy that can offset limited inventory is renovating your way to a dream home.
A foreclosure, or any home that is obviously in need of some TLC, will often be overlooked by buyers who are intimidated by the prospect of updating it. Exploring your renovation loan options may allow you to avoid some of the competition by adding more homes to your list of possibilities.
Small Upgrades, Big Impact
Fortunately, using a renovation loan doesn’t mean you have to hunt for a home in complete disrepair or plan for a massive addition. Lenders will base their decision on the value of a home after the renovations are done, so any project that will add value presents an opportunity.
In some cases, this may be as simple as adding a bathroom to the existing floor plan, updating its style, or repairing some of the property’s primary features, such as the roof or siding. Regardless, the key will be having a specific plan for improving the home and evidence for how it will increase the value. In fact, some loan programs will require a consultant to guide the process.
Know Your Options
The Fannie Mae HomeStyle® loan is designed for those with higher credit scores and offers more flexibility. Buyers can finance more than just a primary residence and can choose the term and type of interest rate that fits best.
Buyers with lower credit can consider an FHA 203(k) loan. These come with a higher cost and more restrictions but can achieve the same goal. They are limited to purchases of a primary residence and will likely feature higher interest rates, more upfront fees, and mortgage insurance premiums in some cases. A 203(k) loan also requires a third-party advisor to oversee the project if the costs exceed $35,000.
Find out if a renovation loan can make your home search easier by exploring your loan options on our website. Or call to speak with an experienced loan representative to find the loan that best meets your needs.