5 Different Types of Home Renovation Loans and How They Work

5 Different Types of Home Renovation Loans and How They Work

For most people, buying a house is an investment because it’s one of the most expensive things a person can buy. For this reason, they go the extra mile to protect their investment. However, there will always be a time when a home doesn’t suit the homeowner’s needs anymore. While selling is an option, many people opt for renovation instead.

Home renovations don’t come cheap, but the good news is that home renovation loans are available. Much like mortgages, a home renovation loan is an easy solution for anyone looking to improve their living situation at the cost of a reasonable payment schedule. Furthermore, home renovation loans can cover improvements or repairs out of the homeowner’s budget, so it will be a handy thing to have.

It’s worth noting that there are different types of home renovation loans, and these include:

#1 – Fannie Mae HomeStyle®

HomeStyle® Renovation Loan is a home loan program offered by Fannie Mae and provided through banks and mortgage companies. The HomeStyle® Renovation Loan is available to homeowners with an existing mortgage from a financial institution. If homeowners intend to refinance their current mortgage, they may also qualify for this home loan.

Applicants eligible for this loan have to possess a credit score of at least 620. This home renovation loan will also adapt to the borrower’s housing situation, as it does not require any restrictions on the borrower’s schedule.

#2 – EZ “C”onventional

As the name suggests, this can be used with conventional loans to refinance the existing ones. The applicant must have at least a 640 credit score, though some providers require up to 700. It’s also possible to use this loan for debt consolidation.

#3 – FHA 203(k)

This option is a type of home renovation loan offered by the FHA (Federal Housing Administration) and provided by banks and mortgage companies. This loan is available to both homeowners looking to purchase a home and homeowners who have an existing mortgage. Borrowers who might not meet the standard requirements of other home renovation loans will benefit from this, and it only requires a credit score of at least 500. There’s also a debt-to-income ratio of 50%-80% available.

#4 – Jumbo Renovation

This type of home loan may be right for borrowers who buy or refinance a home with a high value. It’s worth noting that this type of loan isn’t regulated, so it’s up to lenders to decide the maximum amount for a jumbo loan. For some lenders, the limit is $600,000, while others offer a maximum loan amount of $2 million.

#5 – USDA Rural Development Home Repair Loans

This option is specifically for homeowners who reside in rural areas. It’s a round-up loan, so the borrower must pay up to 100% of the project’s cost. The borrower must be a homeowner, and the property must be in an eligible area for this loan to be approved. There are also some income restrictions to consider—you cannot exceed 50% of the area median income.

When to Consider a Home Renovation Loan

Not all loan providers offer home renovation loans, so borrowers should find a lender who will work with them. Furthermore, there are certain situations where it’s recommended to have a home renovation loan. For example, if a borrower intends to purchase a house that needs repairs, it may be good to consider a loan that can assist them in finishing their house.

Another situation would be when homeowners want to make repairs and upgrades to their homes to increase their value. A home renovation loan can help them with this, and it will ensure that the value of their home is protected.

What Should You Choose

There are a few things to consider before applying for a home renovation loan. The borrower needs to understand their needs and wants and the lender’s policies.

The borrower should also determine the interest rate and if it’s variable or fixed. It’s also essential to understand the type of loan borrowers are applying for because these loans can differ drastically in terms of payment duration, interest rate, and terms and conditions.

Conclusion

Finding a loan that fits the borrower’s needs should be the ultimate goal for anyone applying for a home renovation loan. Loan applicants need to pay close attention to the terms and conditions of the loan and ensure that they won’t run into a financial obligation later. This can help maintain a solid financial standing for home renovation loans, and you’ll also have a new and improved home.

If you’re looking for mortgage refinance funding, Hartford Funding, LTD can help you! We provide comprehensive mortgage solutions to ensure that you’ll be closer to our dream home, and, if you qualify, we’ll be there to guide you from pre-approval to closing. Reach out today to learn more!

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