Renovation Mortgages

No one likes to hear about people losing their homes in foreclosure, but industry analysts predict that real estate markets across the country will see a rash of home foreclosures through 2008 and into 2009.  Many homeowners with sub-prime adjustable-rate mortgages may find themselves in this predicament when their loans reset to a higher interest rate, increasing their monthly mortgage payments beyond what they can afford.  When banks foreclose, the properties will go back on the market, and buyers ready to purchase new homes will be able to find some good deals out there.

Mortgage and Renovation Costs Bundled into One Loan Package

So what happens if you find a home in the perfect location that meets your family’s basic needs but requires major improvements or repairs?  The answer for that fixer-upper may lie in a renovation mortgage - a lender program that allows home buyers to finance the mortgage and fix-up or construction costs together in the same loan. 

How do renovation mortgages work?  There are several options available for renovation financing. 

In a program available through the Federal Housing Administration, when new home buyers finds a house in need of renovation, they contact a lender that handles 203(k) mortgages.  The buyer contracts with a HUD-approved contractor who evaluates the property and determines which improvement projects are most critical.  The lender hires an appraiser to determine the value of the home after improvements, and the loan amount is then based on this post-renovation value.  For example, if the purchase price of a home is $200,000, and the renovations recommended by the contractor will cost $40,000, the renovation mortgage can be written for the full amount of $240,000.  The $40,000 allocated for home improvements is paid out in installments as the work is completed.

Renovation mortgages offer many benefits for borrowers:

• They open up more affordable housing options for buyers.
• They offer buyers the opportunity to add value to the property right away through the improvements they make.  
• Closing on one loan instead of two means buyers save time and money - there is no need to pay repeat costs for such expenses as double appraisals, title searches and other costs incurred at closing. 
• The money for renovations is available up-front so buyers can begin projects right away. 
• Interest rates on these renovation loan programs are also comparable to those for conventional mortgages.

Lenders do require full documentation from the borrower, but the loan requirements are fairly lenient:

• They can be used for a primary residences, vacation homes or investment properties.
• They can be used to purchase homes at least one year old in urban, suburban or rural locations.
•  Planned renovation costs must total at least $5,000.

To learn more about renovation mortgage loans, contact New Homes Central Lending .  Find out how a renovation mortgage program can help you take advantage of the real estate opportunities in your area.  Speak with loan officers at New Homes Central Lending toll-free at (866) 439-6549, Monday – Friday from 8:30 a.m. – 8:30 p.m. or Saturday and Sunday from 9:30 a.m. – 6:30 p.m.

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