For a long time the real estate market was saturated with foreclosures. In fact, according to one expert, 60% of real estate sales in recent years have been through foreclosures and short sales. Over time, most of them have cleared out and the ones that still remain are in conditions that most buyers think they don’t have the money to fix.
Enter the renovation loan. In many ways, purchasing a home with a one simple renovation loan could be the ideal route. Imagine… you find a home in the perfect Atlanta neighborhood with a yard that matches your expectations to a T. Then you enter the home and the sight of outdated kitchen cabinets, checker laminate floors, and blue tiling in the guest bathroom have you second guessing things. But in reality, this is the path to a custom home complete with kitchen cabinets, flooring, and guest bathroom tiles you chose yourself!
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An FHA 203(K) Loan is often referred to as a Renovation Loan. They are a type of federally insured loans for individuals that want to fix up a property that they will use as their primary residence. They usually cover the purchase price of the home and repairs or related expenses.
There are two types being offered:
1. 203K Refinance Loans: May finance up to 97.75% of the “to be improved value” OR finance the “as is” appraised value plus the total cost of all rehabilitation/repairs (whichever is the lesser).
2. 203K Purchase Mortgage: May finance up to 96.5% of the “to be improved” value of the appraisal OR finance 96.5% of the sales price, plus the total cost of all rehabilitation/repairs (whichever is the lesser).
Another option for a renovation loan is the Homestyle Loan. It is intended for people that plan to make exterior renovations and additions. A Homestyle Loan covers all the repairs a 203k would plus luxuries like swimming pools and outdoor kitchens. It is also offered in two types:
1. HomeStyle Refinance Loans: May finance 85% to 95% of the “as-completed” value, plus the total renovation cost (whichever is lesser). Financing terms depend on if it is your primary residence, second home or investment property.
2. HomeStyle Purchase Mortgage: May finance 75% to 95% of the “as-completed” value, plus the total renovation cost (whichever is lesser). Financing terms depend on if it is your primary residence, second home or investment property.
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