No one likes to hear about people losing their homes, but industry analysts predict that real estate markets across the country will see home foreclosures through 2008 and into 2009. When banks foreclose, the properties will go back on the market, and buyers ready to purchase new homes will be able to find some good deals out there.
Mortgage and Renovation Costs Bundled into One Loan Package
So what happens if you find a home in the perfect location that meets your family's basic needs but requires major improvements or repairs? The answer for that fixer-upper may lie in a renovation mortgage - a lender program that allows home buyers to finance the mortgage and fix-up or construction costs together in the same loan.
How do renovation mortgages work? There are several options available for renovation financing.
In a program available through the Federal Housing Administration, when new home buyers finds a house in need of renovation, they contact a lender that handles 203(k) mortgages. The buyer contracts with a HUD-approved contractor who evaluates the property and determines which improvement projects are most critical. The lender hires an appraiser to determine the value of the home after improvements, and the loan amount is then based on this post-renovation value. For example, if the purchase price of a home is $200,000, and the renovations recommended by the contractor will cost $40,000, the renovation mortgage can be written for the full amount of $240,000. The $40,000 allocated for home improvements is paid out in installments as the work is completed.
Renovation mortgages offer many benefits for borrowers:
- They open up more affordable housing options for buyers.
- They offer buyers the opportunity to add value to the property right away through the improvements they make.
- Closing on one loan instead of two means buyers save time and money - there is no need to pay repeat costs for such expenses as double appraisals, title searches and other costs incurred at closing.
- The money for renovations is available up-front so buyers can begin projects right away.
- Interest rates on these renovation loan programs are also comparable to those for conventional mortgages.
Renovation mortgage's can help you take advantage of the real estate opportunities in your area.