real estate

Take care when buying house to renovate it

Figure the financing
Figure the financing © Olivier Le Queinec/

Figure the financing

Four government-backed loan programs are designed for purchase-remodelers. They are:

  • FHA 203(k).
  • Streamlined FHA 203(k).
  • Fannie Mae HomeStyle Renovation mortgage.
  • Fannie Mae HomePath mortgage.

Each program bases the loan amount on the value of the home after renovations are complete, Marshall explains.

Read how FHA 203(k) and Fannie HomeStyle Renovation mortgages work.

Loans have guidelines

Sometimes, the cost or particulars of the project rule out certain loans: The HomePath and the streamlined 203(k) are restricted to renovations costing less than $35,000.

Loan limits are larger, but "the FHA 203(k) doesn't allow for 'luxury renovations,' like a pool, but FHA does allow for a detached garage, and not the HomeStyle," Marshall says.

Besides government loans, "It is very likely that a local, community bank will have their own loans based upon the (renovated) value of the property," says Ron Haynie, senior vice president of the Independent Community Bankers of America.

Lenders require periodic inspections, and money is disbursed in intervals after inspectors approve work, Haynie adds.


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