My Bank Gave Me Mortgage Pre-Approval But Now I Need Renovations
It happens a lot. We'll see a contact form from a potential borrower that tells us "ACME Bank gave me mortgage pre-approval. But the house I want needs work and they don't do renovation loans." Don't worry, your home buying process isn't completely off the rails. We can help.
What is a Renovation Loan?
A mortgage that allows the borrower to finance repairs, renovations, remodeling or other home improvements into the loan amount is a renovation loan. Not many lenders tackle these, because of the extra paperwork and behind the scenes work involved. Lenders have to be able to okay trusted contractors so they know the work will get done, and done well. Renovation Loans include additional inspections, plus disbursements or draws (this is when the lender releases money to the contractor to pay for materials and work).
One of the most-used renovation loans is the FHA 203k. This home improvement loan takes special mortgage pre-approval from a lender able to do the work involved with hte 203k. First, the bank must be FHA-approved. But it must also understand the 203k program.
The FHA 203k allows you as the borrower to buy a house - even if it doesn't pass an FHA inspection - and close on that house before the work is done. Construction happens after closing, and is paid for with the overall loan based on the after-improved value of the house. For about $6 a month in addition to the purchase price of the home, you can finance $1,000 in renovations. So if you're looking at a $20,000 remodeling budget, you'll add about $120 to your monthly house payment.
Renovation loans help home buyers get the house they want, and turn it into the home they love. And it's all rolled into one mortgage - it's not a second mortgage.
Another renovation loan is called HomePath Renovation. This is specifically for Fannie Mae-owned properties that need a little work. Maybe they're just missing a furnace, or maybe the house needs a new roof and replacement windows. Whatever it needs, HomePath Renovation helps the borrower finance the renovations (up to $35,000 or 35% of the purchase price) directly into the life of the mortgage. This loan also takes special mortgage pre-approval.
So if your bank was able to pre-approve you for just the right amount of house you wanted, but the homes you're looking at need renovations, you may want to consider getting a second opinion. A community mortgage banker and specialty lender like AmeriFirst Home Mortgage can help you find the right solution to this problem.
Learn more about home improvement loans like the FHA 203k with "The Ultimate Guide to Home Improvement Loans" at the button below. Whether it's a HELOC you'll need or HomePath Renovation, we can help you make that decision that best fits your situation.