Renovation loans are a great choice for borrowers because they only have to deal with one single loan to cover both the purchase price and the renovations. This means only one payment with lower interest rates.
There are several loan options to choose from if you decide to buy a home that is in need of repairs. Some of the most popular home renovation loan options are Freddie Mac CHOICE Renovation, Fannie Mae HomeStyle, FHA 203(k), VA Renovation, and USDA Rural Development Home Repair Loan.
Freddie Mac CHOICE Renovation Loan
The Choice Renovation loan can be used for non-structural renovations that add value to the property. This type of loan covers both primary residences and second homes. This is great for a borrower who wants to build equity in a vacation home. Another great feature that is special about the Choice Renovation loan is that you can use it for luxury items. Are you thinking about putting in a swimming pool, outdoor kitchen, tennis court or a hot tub? This might be the loan for you!
Fannie Mae HomeStyle Loan
The Fannie Mae HomeStyle loan allows borrowers to make a down payment as low as 5 percent. This loan makes it easier than ever to buy a fixer-upper home. Borrowers are able to make renovations, repairs and improvements totaling up to 75% of the completed home value of the property without the need to obtain a second mortgage or a home equity loan.
FHA 203(k) Loan
The FHA 203(k) is similar to the Fannie Mae HomeStyle loan but it is available to borrowers with lower income and lower credit scores. The minimum FICO score is 580, which is significantly lower than that of Fannie Mae’s HomeStyle loan. FHA offers a full loan for more significant repairs as well a streamline loan for minor repairs totaling less than $35,000.
VA Renovation Loan
A VA Renovation Loan allows borrowers to purchase the home that they love for use as a primary residence while putting zero money down and still having the funds needed to fix any minor, non-structural issues that the property has. The maximum cost of renovations is $100,000 and renovations over $50,000 require a 203(k) consultant.
USDA Rural Development Loan
The USDA Rural Development loan is a great option for low to moderate income borrowers. This loan can be used to pay for a wide range of renovations including, siding, roofing, windows, foundations, plumbing, electrical improvements and other necessary upgrades. The eligibility for this program is based on income (uo to 50% of the area’s median income) and rural location.