Whether you are exploring the option of purchasing a home in need of repair or your own home requires some renovations, programs through the FHA (Federal Housing Administration) can help. Receiving a loan for home repairs, whether in the buying process or otherwise, can be rather difficult through traditional bank lenders, but by discussing a “fixer upper” or refinancing option with an FHA mortgage loan officer, you can incorporate the repair costs into a home loan. This results in lower interest rates than would be found through conventional loans as well as gives home owners the convenience of one convenient monthly payment and interest rate.
The FHA 203k Rehabilitation Mortgage Program
Not every home that is purchased is a brand new house that has been freshly built. In fact, a previously owned, older home may be in need of some repairs or renovations upon purchase. In these cases, the potential homebuyer may feel as though they are stuck between a rock and a hard place. This is because with conventional loans, many mortgage lenders will not loan on the house until repairs have been made and the repairs can’t be made until the house has been purchased. Fortunately the FHA 203(k) program has been put into place to help homeowners in this exact situation.
The 203(k) program helps future homeowners who may need additional financing for repairs, through rehabilitation financing. This allows an additional monetary amount to be added to a permanent mortgage, allowing for the complete financing of the property as well as the construction improvements. To receive the home repair funds, homeowners must have the property undergo an appraisal process which also estimates the total amount of repairs (including the cost of work, not just materials). You can read more about the 203(k) home rehabilitation program throughout our site.
The Cash-Out Refinance
For homeowners currently living in an FHA home, the Federal Housing Administration provides an opportunity for extra cash through a home refinance. The cash out refinance option allows homeowners to refinance their home in a unique way that allows for a cash refund on mortgage payments that have already been paid. Essentially, this style of refinance works as such:
If a home owner has a $230,000 home and has paid $80,000 towards the mortgage, they can refinance with the cash out option and receive up to $80,000 back in cash. This means that their mortgage will extend back up to the original $230,000 cost but the homeowner will have $80,000 to go towards housing repairs or other costs.
Traditionally this loan is used by homeowners wishing to purchase a car or another large cost item at a lower and all-in-one monthly mortgage payment. However, it also works exceptionally well for home repair funds.
Home Improvements through the FHA
There are quite a few other government insured loan programs that help current homeowners improve their home as well as helping future homeowners purchase the fixer-upper home of their dreams. You can explore your options by speaking with one of our expert loan officers or by reviewing more information throughout our website.