Have you scoped out the housing market and determined a fixer-upper is the most affordable option?

Are you hesitant about the cost of home renovations and repairs? Even though you have a healthy savings account, taking out a loan may be best to cover these expenses. Fortunately, there are numerous rehab loan product options available to give you a helping hand.

What is a Conventional Rehab Loan?

A conventional rehab loan offers the perfect solution for anyone looking to purchase a new home and budget renovations all in one! Rather than taking out a second mortgage or paying exorbitant fees, you can finance both with just one simple loan product. This hassle-free option makes it easier than ever to customize your dream home without breaking the bank.

Financing is available from various banks and private lenders to cover cosmetic and structural improvements.

How Does a Conventional Rehab Loan Work?

Here’s what to expect with a conventional rehab loan:

• Step 1: Applying for a loan product is the first step. When you’ve been pre-approved, your lender will let you know the details such as how much down payment is necessary to secure it.
• Step 2: Gather the contractor plans for the renovation project and send them to the lender for approval.
• Step 3: Once the plans are authorized, a lender will send an appraiser to assess a post-repair value (which takes into account the contractor’s plans).
• Step 4: After finalizing the purchase of your new home, you can begin renovations; they are typically completed within six months. However, some lenders allow up to a year for approved projects.

Types of Conventional Rehab Loans

Homebuyers have access to two distinct types of conventional rehab loans.

Fannie Mae HomeStyle Renovation Loan 

Take advantage of the Fannie Mae HomeStyle Renovation Loan to finance upgrades on a current or prospective home. You’re able to borrow up to 95% of your house’s post-renovation value at attractive interest rates that are typically lower than those offered through other loan options such as equity loans or lines of credit. Plus, you get flexible repayment terms – choose from 15-year and 30-year plans.

By rolling the purchase price and renovation costs into a single mortgage product, you can save yourself from taking out two separate loans as well as having to pay closing fees twice. Plus, with just one monthly housing payment, it’ll be easier for you to manage your finances. Keep in mind that if you already own the home, this means you’d have to refinance your existing mortgage which could possibly result in higher interest rates than what was originally offered.

With this loan, you can complete most home upgrades and temporary living expenses within six to 12 months after closing. Unfortunately, it cannot be used for constructing a second property, making temporary improvements or demolishing the original dwelling with the provided funds.re to qualify. And ideally, your debt-to-income ratio should be no more than 45 percent.

Freddie Mac CHOICE Renovation

The Freddie Mac CHOICERenovation loan is the perfect choice for those seeking to purchase an investment property, second home or multi-unit residence. With this program you can borrow up to 95 percent of the homes after renovation value.

The advantage of this loan is that it’s much more versatile than the Fannie Mae HomeStyle Renovation Loan. You can use the funds to make most upgrades, and if a natural disaster hits, you can easily cover repairs to protect your property from sustaining significant damage. Not only are renovations covered but also expenses incurred due to damages caused by natural disasters.

When Should You Use a Conventional Rehab Loan?

If you’re a homebuyer in search of a fixer-upper but lack the budget for upgrades, then consider taking out conventional rehab loan. Better yet, even if you do have money on hand to finance your remodel expenses you can save it! With this loan product not only will you receive an affordable interest rate but also enjoy the convenience of making one single payment which covers both purchase and renovation costs simultaneously.

How Do You Qualify for a Conventional Rehab Loan?

You could qualify for a conventional rehab loan if you meet the criteria below:

• Have good or excellent credit
• Have a down payment of at least five percent
• Have an acceptable debt-to-income ratio

If you’re ready to learn more about Reverse Mortgage options, Sword Mortgage is ready to help

If you’re looking for the best reverse mortgage lender in town, be sure to do your homework first. At Sword Mortgage, we believe that an informed customer is the best kind of customer. Therefore, our loan officers will take the time to fully explain your options and help you understand all aspects of your unique situation before making a decision. Call 770-826-0222 to speak to a mortgage professional or get started on your loan application process today.