A house that you can call your own is part of the American Dream. The road towards home ownership is rocky, though. With the national average sales price of new houses reaching $377,200 in September, the American Dream might remain just a dream for many Americans.
Buying a fixer-upper home is a good compromise for many people. In fact, over half of the respondents surveyed by HomeAdvisor said they’d consider a fixer-upper home if they move out of their current residences. These kinds of homes cost less than new houses, sometimes even counting the renovation costs.
Finding the Right Loan Program
There are several home renovation loan options available. More often than not, they are more economical than taking out two mortgages or a home equity line of credit. You can use your mortgage to finance a minor or major home renovation project. Another option is to roll the cost of buying the house into the cost of renovating provided that the improvements add significant value to the property.
Academy Mortgage Arizona recommends the Federal Housing Administration (FHA) 203(k) and the Fannie Mae HomeStyle® Renovation Loans. These two options are both government-backed and have the lowest minimum required down payment (3.5 percent and 5 percent, respectively).
The FHA 203(k) and the Fannie Mae Homestyle loans also have a minimum credit score of 620. This makes the two loans feasible options for most people, even millennials with a poor credit history and several student loan debts.
Homeowners and homebuyers can take out either of the two loans. Take note, though, that the FHA 203(k) only applies for owner-occupied primary residences while the Fannie Mae Homestyle loan applies to both primary and secondary homes.
Pros and Cons of a Home Renovation Loan
The biggest benefit that home renovation loans offer is the low down payment needed. You’ll also be able to combine your home purchase and improvement projects in one loan. It provides instant use of the equity of your new home. You can borrow the amount your home would appraise for after the remodeling.
One drawback of taking out a home renovation loan is that you have to have a licensed contractor already picked out in advance. You need to have your renovation plans approved before getting your home appraised. You must also follow a strict schedule for the renovations.
Renovations that Add the Most Value
Apart from the necessary repairs to your home, prioritize outdoor remodeling projects for a higher return on your investment. Garage door replacements have the highest payback with 98.3 percent of costs recouped.
Manufactured stone veneer house sidings, wood deck additions, and window replacements are other outdoor home improvement projects that drive resale value. For indoor renovations, kitchen and bathroom remodeling recoup the most costs.
Financing a home remodel is more doable buying a newly constructed house. Thoroughly explore all your options first to make an informed choice. The right home renovation loan and careful planning of your home improvement projects put the American Dream within closer reach.