Do you need funds to fix your home? If so, then you can consider getting a renovation mortgage that provides funding for homeowners who want to remodel their homes. Depending on the type of mortgage you apply for, you may be required to show proof that you spent the money on your home or used it to pay a contractor for the renovations.
Read on to learn what a renovation mortgage is and how it works.
What is a Home Renovation Mortgage?
A home-renovation loan is a type of credit that you get separately or as part of the mortgage to cover the costs related to renovating your fixer-upper. You can buy a home at a relatively low price then take out a loan to fix it and increase its value. The advantage of this type of credit is that it helps you determine the value of your property when you decide to sell it at a later stage. Home renovation loans may cover different remodels that include roofing, updating heating and cooling systems, waterproofing, mold removal as well as energy efficiency improvements. You can also add a new bathroom or kitchen to your home to increase its resale value.
Get the Right Type of Loan
You need to get expert advice to make an informed decision when applying for a home renovation loan. The financial advisors from ExpertMortgageAdvisor.co.uk explain that there are different types of renovation mortgages, so you must choose wisely. When choosing a home renovation loan, you need to understand the risks associated with it to be able to make an appropriate decision. If you spend too much money on your home, your chances of defaulting on your mortgage payments will increase. Therefore, it’s best to consult an expert in that area to understand the implications of this kind of credit on your financial future.
How Does a Renovation Mortgage Work?
There are a variety of home renovation mortgages you can choose from, and they all work in different ways, depending on the type of financing that you apply for. The following are some of the most popular home renovation loans that you can consider.
Fannie Mae HomeStyle: This type of loan covers the purchase price of the property as well as the cost of repairs. It is popular because the borrowers can just focus on one loan with fixed monthly payments instead of taking out two different loans. The borrower can choose the right type of Fannie Mae loan with the most favorable terms.
FHA 203(k): This loan is available to borrowers with low credit scores, but it is more expensive than other types, as it comes with a fee that you have to pay upfront. On the other hand, a Streamline loan covers minor repairs that are usually below $35,000.
EZ “C”onventional: This loan can help you add value to your home by covering the cost of non-structural repairs. Borrowers or appraisers can determine the renovations they want.
Jumbo Renovation: This type of loan is quite similar to the EZ “C”onventional. The one notable difference is that this loan is meant for more expensive homes that are not covered by other forms of home repair mortgages. A Jumbo loan can be used for renovations recommended and approved by the appraiser, and these don’t include non-structural changes but ones that add value to your home.
USDA Rural Development Home Repair Loans: This loan helps new homeowners purchase new appliances, fix the roofing, plumbing, windows, siding, and foundations, and make electrical upgrades.
HELOC: A home equity line of credit (HELOC), or home equity loan for short, is another affordable fixed loan that you can get to cover the home renovation costs.
Significance of Renovation Mortgage
It is vital to consider applying for a renovation mortgage to upgrade your property if you believe that the project will add value to it or reduce its long-term maintenance costs. The right home renovations can help you get a better asking price should you decide to sell the property later on. Some repairs also make your home safer, while others improve energy efficiency. You must not invest too much in the remodeling of your home since this can make it overly expensive compared to other similar properties within your neighborhood.
When you buy a fixer-upper, you can take out a renovation mortgage to convert it into your dream house or increase its value and sell it for a higher price. The right home renovation loan will help you fix the house and increase its value, whether you intend to live in it or not. This type of loan should be specifically used for renovating your house since the lender may ask you to provide proof that you used the money in a deserving way. It is crucial to get the right loan that suits your needs, but you must be aware that every loan comes with some risk, so make sure you choose wisely.