Can You Add Renovation Costs to Your Mortgage? Investigating Your Alternatives
If you’re thinking about buying a home that needs work, you might be wondering if you can add the cost of those repairs to your mortgage. The good news is that it is possible, but it is critical to understand your options and the implications of adding renovation costs to your mortgage. In this article, we’ll look at how you can add renovation costs to your mortgage and what you should think about before doing so.
Including Renovation Costs in Your Mortgage
Once you’ve established a renovation budget, you can begin to consider your options for adding the cost to your mortgage. As a result, the remodeling costs would be added to your initial loan amount (the money needed to purchase the home), resulting in a new combined total balance for your mortgage. This is known as a renovation loan or a home improvement loan. Here are the two most common types of renovation loans:
1. FHA 203(k) loan
This loan is backed by the Federal Housing Administration (FHA) and is intended to help homebuyers finance the purchase and renovation of a home with a single loan. The FHA 203(k) loan allows you to borrow up to 110% of the home’s projected value after renovations are completed. This means you can borrow enough money to buy the house and cover the cost of renovations.
2. Fannie Mae HomeStyle Renovation Loan
Fannie Mae offers this loan, which allows you to borrow up to 95% of the home’s projected value after the renovation is completed. With this loan, you can finance both the purchase of a home and the cost of renovations with a single loan.
Things to Consider
While adding renovation costs to your mortgage can be a convenient way to finance home improvements, it is critical to carefully consider the following:
Adding renovation costs to your mortgage will raise the overall cost of your home. You’ll have to pay interest on the additional amount borrowed, which can quickly add up. Make a note of the additional costs and include them in your budget.
Both the FHA 203(k) loan and the Fannie Mae HomeStyle Renovation loan have eligibility requirements that must be met. You’ll need a good credit score and a solid financial history, and your lender will most likely require an appraisal and property inspection.
-Choosing a Contractor
If you use a renovation loan, your lender may require you to use a licensed contractor to finish the renovations. This can limit your options and increase your costs.
If you’re buying a home that needs renovations and doesn’t have the cash on hand, adding renovation costs to your mortgage may be a good option. However, before making a decision, it is critical to carefully consider the additional costs and requirements. Work with a qualified lender who can guide you through the process and find the best loan for your needs.