How does a home renovation loan work in New Jersey?
Are you thinking of renovating your New Jersey or Pennsylvania home in 2019 and want to take out a renovation loan?
This type of loan gives existing homeowners the funds needed to complete repairs, renovations, or remodeling jobs. They come in the form of mortgages with built in funding or personal loans styles. Depending on the type of loan, homeowners may need to prove that the money was spent on the house or pay to a contractor for the home.
A home renovation loan works when someone is buying a home that needs repair and depends on the type of financing the applicant is using. There are several options when it comes to a home renovation loan:
Fannie Mae Homestyle® – This is a single close loan that includes the cost of home repairs in the overall loan amount. It is ideal for making repairs that an appraiser requires or for any changes the homeowner wants to make once they close on the loan. It can be used for both structural and cosmetic repairs. This is appealing because it’s just one loan and one monthly mortgage payment with lower interest rates than an additional second mortgage. Applicants can choose either a 15 or 30-year mortgage and the final loan amount is based on the projected value of the home after the repairs or renovations.
FHA 203(k) – This type of home renovation loan is a government-backed loan open to buyers with lower credit scores. It may be more expensive than the traditional Fannie Mae renovation loan and may include mortgage insurance premiums for those with smaller down payments. There are two distinct sections: full loan and streamline loan. This will vary based on the state of the property.
EZ “C”conventional – This renovation loan can be used with conventional mortgages for nonstructural home repairs that add value to the home. It is more designed for cosmetic repairs and updates.
Jumbo Renovation Loan – similar to the conventional loan, this one is designed for higher-priced homes that may not be covered by other repair home loans. They can be used for projects required by an appraiser or repairs that the homeowner needs to make.
USDA Rural Development Home Renovation Loan – This is designed to help borrowers secure decent housing and can be used to cover appliances, structural repairs, plumbing, or other necessary upgrades for the health and safety of the inhabitants.
For the FHA 203k rehab loan, the minimum credit score requirement is 640; the minimum for the Fannie Mae HomeStyle loan is 680.
The underwriting process for an FHA 203k loan is significantly easier than that of a Fannie Mae HomeStyle loan. Fannie Mae’s process is very stringent and focused on details.
Gift funds are allowed as part of a partial or full down payment for an FHA 203k loan. Gift funds for the Fannie Mae HomeStyle loan are determined on a case by case basis.
Purchase or Refinance
Both loans are good for using to purchase or refinance a home.
Closing Costs and Down Payment
For an FHA 203k loan, the minimum down payment is 3.5% and it may be gifted. Closing costs can also be paid with a seller contribution. For the Fannie Mae HomeStyle Loan, the minimum down payment is 5 %, with usually lower closing costs than the FHA 203k loan.
The FHA 203k loan, is as its name suggests, an FHA loan, whereas the Fannie Mae HomeStyle Loan is a conventional loan. The FHA loan is good for cosmetic changes and less complicated upgrades and the Fannie Mae allows for major renovations.
Many FHA loan limits will increase in 2019. For high-cost areas, the FHA loan limit is $726,525. The FHA will also increase its floor to $314,827.
A cash-out refinancing option can be an alternative to a home renovation loan. This involves refinancing the current mortgage at a higher loan amount and using the extra cash for renovations or upgrades. This is a good option if you have at least 20% equity in the home, a decent credit score, and lower interest rate options available.
It’s best to weigh all of the costs and options involved in a home renovation loan. For expert care and service for home renovation loans in New Jersey and Pennsylvania give us a call. We can explain all of the pros and cons and find out which option is ideal for your home renovations.