Can you get a loan for a fixer-upper house? This is a common question home buyers ask before they commit to purchasing a home in need of renovation.
After all, repairing a fixer-upper home is a huge investment. Despite the lower price tag for the home itself, the cost of labor and materials more than makes up for anything you save upfront.
On top of that, it’s important to have some flexibility with your renovation budget, as projects can hit unexpected delays and end up taking longer than expected.
In this post, our team at Your Home Sold Guaranteed Realty — The Nathan Clark Team will answer the question, “can you get a loan for a fixer-upper house?” We’ll also take a look at five loan options for fixer uppers.
Can You Get a Loan For a Fixer-Upper House?
The loans required for fixer-upper properties differ from those for move-in-ready homes. These loan products include the mortgage amount as well as the cost of repairs.
They also have some different requirements in order to qualify. For example, you’ll need to have your home appraised to determine the dollar amount of repair work needed. Other loans may require you to use an approved contractor.
Of course, you’ll also need the same financial requirements as traditional loans: a strong credit score, steady income, and a good debt-to-income ratio.
In addition, some fixer-upper home loans are only intended for home buyers who plan to use the home as their primary residence. So you’ll need to review your options if you’re an investor who plans to flip the home and sell it at a profit.
Below, we’ll go over the five main types of home loans for fixer-upper properties.
1. Fannie Mae Homestyle Renovation
The Fannie Mae Homestyle Renovation loan can be used for both home buyers and investors. It allows you to borrow up to 97% of the cost for both the mortgage and repairs.
The exact loan amount is based on either the cost of the home and repairs, or the estimated value of the property after the repairs are made.
The lender will need to approve the renovation projects. If you have the right skills, you can take up some of the repair work on your own. But for more complex projects, the lender will have you work with a licensed professional.
To qualify, you’ll have to make at least a three percent down payment and have a credit score of 620. However, if you make a down payment below 20%, you’ll need to pay for private mortgage insurance.
2. Freddie Mac CHOICERenovation
The Freddie Mac CHOICERenovation loan has similar terms to the Fannie Mae Homestyle Renovation.
For example, the loan amount is also determined by the cost of the home and repairs or the projected value of the home after the repairs are made– whichever amount ends up being lower.
The biggest difference is that the renovations will need to be completed within a year of signing the loan contract.
In addition, the Freddie Mac loan can be used for renovations intended for disaster-proofing the home, not just cosmetic repairs.
3. FHA 203(k)
The Federal Housing Administration comes in two types: standard and limited. Both cover the mortgage for the home and the cost of repairs. But with the limited loan, you can only borrow up to $35,000 for smaller renovations.
With the standard option, there are no borrowing limits, but you’ll need to work with an approved contractor to plan the renovations.
The FHA loan also comes with lower borrowing qualifications. At a minimum, you’ll have to make a 3.5% down payment and have a credit score of 580 or higher. But if your credit score is between 500 and 580, you’ll be required to make a slightly higher down payment of ten percent.
4. VA Renovation Loan
If you’re a veteran, the Veterans Affairs Department’s Renovation loan offers several benefits. First, you don’t need to make a down payment or have a minimum credit score.
However, keep in mind that while the VA doesn’t set a minimum credit score, the lender you’re going through might have their own requirements.
In addition, you can cover up to 100% of the cost of repairs. The loan amount is calculated based on the projected value of the home after repairs are made.
To qualify, you’ll need to show proof of your veteran status, as well as demonstrate that your financial situation is secure enough to afford the home.
You’ll also be required to use a contractor approved by the VA, and the property must be used as your primary residence– it can’t be for investment purposes.
5. USDA Renovation Loan
The U.S. Department of Agriculture’s Renovation Loan can be used for fixer-uppers in rural areas. Just like with the VA renovation loan, no down payment is required, and up to 100% of the cost of repairs can be covered based on the home’s estimated value after it’s renovated.
The main difference is that the USDA loan is intended for low-income borrowers, so there are income limits. The exact limit will depend on your area, so be sure to check with a lender.
In addition, you can avoid using a USDA-approved contractor as long as your repairs are $35,000 or below. Otherwise, you’ll need to work with an inspector if the cost of renovations exceeds this amount.
Buy a Fixer-Upper in New England With Our Team
If you’re wondering, “can you get a loan for a fixer-upper house,” the answer is yes. But this doesn’t mean you should rush in and buy a fixer-upper.
Fixer-upper homes come with some unique considerations compared to move-in-ready homes. So if you’re planning to buy one, you’ll need to work with an experienced realtor who specializes in that type of property.
At Your Home Sold Guaranteed Realty — The Nathan Clark Team, we’ve been helping home buyers in New England for over 21 years. During that time, we’ve developed a reputation as one of the best realtors in the area.
Our decades of experience mean we’ve handled hundreds of fixer-upper home purchases and understand what it takes to buy one.
Our home buyers enjoy working with us because we prioritize customer satisfaction and provide buyer guarantees that make buying a home risk-free– including fixer-upper properties.
These guarantees include our Buy it Back Guarantee and Exclusive Buyer Protection Plan. To learn more about how these guarantees work or what it’s like working with our team, call us at 401-288-3557 or fill out the form below.