Home improvement, it is a time-honored American tradition. We are obsessed with our homes.Entire TV channels are dedicated to transforming our homes into our own personal paradise.However, these projects don’t just happen on their own.You either need to save for years to have enough money to undertake a major home improvement project or you have to look at the available loan options.If you are going the loan route, then you need to find you which home improvement loan options are the best.
FHA 203(k) Home Improvement Loan
The FHA 203(k) Home Improvement Loan is a home improvement loan program which is guaranteed by the Federal Housing Administration.The program is meant to assist homebuyers and homeowners who need help turning the right house into the home of their dreams.The program can be used for new purchase or refinances and borrowers with credit scores as low as 500 can qualify if they pay a higher down payment.
In the simplest terms, there are two types of 203(k) loans.The standard and the streamlined or limited version.The standard loan is for larger scale improvements including structural repairs or upgrading a master bedroom.The streamlined 203(k) is ideal for cosmetic projects like resurfacing a roof or replacing windows.
Both loan types have a minimum repair requirement of $5,000 and the projects will have to be overseen by a consultant who is hired by the homeowner.The job of the consultant is to determine whether the proposed home improvement project is a good idea and then to oversee the construction phase.
In terms of loan limits, a homeowner can borrow up to $625,000 depending on where they are located.The loan itself can have a Loan-to-Value of 100%of the home’ value or the cost of the home after the renovations, whichever is less.Also note that these loans are solely for a primary residence, not a vacation home or an investment property.Though the loans can apply to owners of condos and townhouses.
While the program has received a bad rap, it is actually one of the best home improvement loan options on the market today.Especially for homeowners without much capital.One of the downsides is the fact that the mandated mortgage insurance costs more than private options.
Fannie Mae HomeStyle Loan
This program is best suited for owners with perfect credit scores.If you fall into this category, then you can borrow up to 45% debt-to-income.This is how much money you own compared to how much money you earn.
One benefit of the program is the time allowed to complete improvements.Investors can also qualify for a HomeStyle loan if they bring a 15% down payment to the table – assuming they have perfect credit as well.
Another benefit is that you can borrow up to half of what an appraiserestimates the house to be worth after repairs.If you purchase a $300,000 house and the appraiser estimates the house to be worth $400,000 after repairs, then you can borrow up to $500,000 in theory.Though in reality, the bank would only let you borrow the $400,000 you need to purchase the house and complete the improvements.
Home Equity Loan
Another home improvement loan option is to get a home equity loan.These loans are best suited to existing homeowners who have built up substantial equity in their homes.Compared to refinancing, the closing process is much more straightforward and less expensive.As home equity loans generally range from 8 to 15 years in length, this loan option is good when you have a large-scale project that will take more than a year to complete and payback.
This option might not be for everyone as well.But it is a good choice when you need to conduct a minor improvement, have almost perfect credit, and you can pay back the loan in one year or less.One of the big plusses of an unsecured loan is that you are not pledging your home.This means you can’t lose your house if you are unable to pay off the loan.Another advantage is that the rates tend to be much lower than credit cards.As such, you get to keep your credit limit intact and pay lower interest rates.
No matter which option you choose, the best course is to check all of the available loans on the market and figure out which one is the right for you.Don’t only check the rate, but check the fine print as well.In this way, you will know that you truly got the best option for your home improvement loan.
Categories: Real Estate
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