Need cash for a Reno?
HomeStyle Loans for Renovating Homes
The HomeStyle Loan is an underutilized conventional loan type than many lenders offer in today’s mortgage market. Most Realtors® and home buyers do not even realize that this financing exists. Using this system allows buyers to get the money they need in order to renovate a home that needs some TLC, especially if their house lacks personal appeal. In today’s world of “HGTV eyes” and the current financial climate, lots of home buyers are expecting much more for their money. Less and less homes have been updated and lack popular modern styles. Realtors® often have the ability to show more homes that have potential to be modern, give some ideas of what the space can be, and educate their clients on the renovation process. Similar to a new construction home, home buyers will be improving the property with their own design styles in mind as well as getting that home they always dreamed of at a less expensive cost per square foot. Despite this general concept there are pros and cons that take allowances for higher end improvements, costs, as well as the capacity for flexible financing into consideration.
One of the major benefits of the HomeStyle Loan is the utilization of loan funds instead of cash on hand to improve a home. Keeping cash on hand in savings instead of utilizing it all on a home renovation is a safer option for most savvy buyers. A downside to this would be the fact that the home buyer would have to hire a licensed contractor in order to obtain a bid and complete the improvements they want to make before closing of escrow. Although, some lenders that underwrite these types of loans may allow for self contracting. Another benefit involved with HomeStyle loans is the fact that most lenders allow the amount borrowed to go up to 95% loan to value – meaning only a 5% cash down payment is needed to qualify; a fraction of most conventional loans, which may require a 10-20% down payment. An issue involved with just putting 5% down is the fact that the home buyer is then required to pay monthly PMI (primary mortgage insurance) until the home reaches 80% of the total appraised value. This additional cost each month can keep home buyers from achieving a quick pay off of their home or a larger, less affordable monthly mortgage payment. Another great reason to use this financing type could be the fact that buyers can quickly improve the overall equity position and quicker enjoyment of an updated, modern home right away rather than doing improvements over years of living in their home. Living through constant renovation projects can be a costly, messy and loud process. The downside is the home buyer most likely will not occupy the home right away and the renovation can take 3-6 months, depending on types of improvement. In addition to this, home buyers who are seeking “move-in ready” or “turnkey” properties will not be a fit for a HomeStyle loan.
Not all loans allow for major renovations or luxury items to be financed into a mortgage. The HomeStyle Loan financing is flexible and allows for:
Modest to high-end kitchen and bathroom renovations
Whole home renovations including flooring and paint
Outdoor kitchens, landscaping, even swimming pools
Full roof replacements
Energy efficiency updates to the property
According to Ryan Larussa, a licensed mortgage loan officer with GMFS Mortgage, home buyers seeking the HomeStyle Renovation financing would need the following to qualify*:
45% debt to income ratio, better know as “DTI”
660 or higher credit score
5% Down payment (of the sum total after renovation amount)
Property must be owner-occupied
Can be 1-4 Unit primary residence or single unit secondary homes
*Financing requirements can change from time to time but current financing requirements are listed.
So, for the brave and bold home buyers in today’s market, not afraid to take on a fixer upper or just want something more modern or luxurious, the HomeStyle Loan is a great way to keep your cash, save for a rainy day, and have the home completely improved before you move in, all with credit flexibility. It’s truly a win win for home buyers today to take a home and turn it into a dream home reality.
Amanda Allen, Realtor®, along with her husband, Scott Allen own a local construction company, Skilled Contractors, LLC, that specializes in home renovation construction projects that include HomeStyle Loans. Realtors® or Home Buyers interested in more information about this program can contact Amanda at (225) 337-2112 or Scott at (225) 454-4387 for more information.