Selective loan programs
The VA loan for renovations is only available to active service members, veterans, and qualifying spouses. It does have to be your primary residence but can be utilized for up to a four-unit property. The loan is up to $1 million or 100% of the purchase price, and you do not need any down payment. The VA renovation loan can be an amazing opportunity to those who qualify as it can be nothing out of pocket to fully renovate a property.
The rural development home repair is a loan offered by the USDA strictly for health and safety renovations in rural areas. Qualification is based on your income in relation to that of the area's; it must be less than 50% of the area's median income. This is specifically for a very low-income or elderly borrower. It has a fixed interest rate of just 1%, making it an outstanding option for small improvements under $20,000 if you meet the qualifications while still maintaining a reasonable mortgage payment.
The jumbo loan is most similar to the EZ Conventional. However, unlike the above loans, it is not based on the person applying but rather the amount of the loan. It is used in conjunction with a conventional mortgage for more expensive homes that fall outside of the conforming loan limit. It needs to be your primary single-family residence. You will also need 5% down, and it is only for nonstructural repairs that add value to the home. But it can open the door to financing your renovations in a single loan without having to carry a second mortgage or put large amounts down at closing.
Alternative non-renovation loan options
Alternatives to a true renovation loan can include a home equity line of credit (HELOC) or cash-out refinance if you have more than 20% equity in the home. This can allow you to draw upon the equity of the home you're repairing or another home that you own to finance it. This refinance will usually come at a slightly higher interest rate but won't have the restrictions and limitations that the above-mentioned loans dictate. You will be able to finance any project you want with or without a contractor.
If you have most of the money for the renovations but are overwhelmed with carrying two mortgages while you live in your current residence and fix up the new house, you can opt to roll your first six months' worth of mortgage principal, interest, taxes, and insurance into the FHA mortgage. A HUD inspector will need to come out to the property and deem it uninhabitable prior to the work being completed to qualify for this program. It can give you just enough time to get the repairs done and the other residence sold before starting your new mortgage payments.
For minor repairs and borrowers who use debt responsibly, you can potentially finance home improvement projects on a credit card. If your card limit is sufficient and you are diligent about paying down the card in a reasonable time frame, it could potentially be cheaper to go this route despite the higher interest rates. And if you're patient, many of the cards will send offers for fixed interest or no interest for a set period of time. Just use caution, as many cards will have variable interest rates.
The Millionacres bottom line
Regardless of whether you're a homeowner or investor, there is a home improvement loan for almost any scenario -- from low-income affordable housing to high-end conventional mortgages and everything in between. Your credit score and the repairs needed will dictate which program will work best in your particular situation. Make sure to get multiple quotes from a mortgage broker before moving forward, as rates can vary by lender.
Renovation financing allows the repairs to get done on a much shorter timeline than if you were to attempt saving up cash for the project; plus, it's likely that you can find reasonable interest rates. With renovation financing, the fixer-upper that you're eyeing could be a move-in ready home in no time.