Dave,
We have seen several older homes that need a lot of work to bring them up to acceptable standards. We’re more than happy to purchase a “Fixer Upper” but we’re not sure where the funds to do so would come from. Unfortunately, we’ve got a lot of knowledge and determination to really turn a property around but our abundance of hard work and “know how” way outweigh our cash funds to purchase the materials after we take care of the down payment and purchase costs. That got us thinking – Can we include the costs for the needed improvements in our mortgage? Can you point us to a solution to help my our “Fixer Upper” dreams come true?
Troy and Anna,
Fruita
Troy and Anna,
Yes, many times you can include improvements or repairs of an older or foreclosed home into your mortgage. The loan program is called a 203(k) or 203(k) streamline loan. An FHA 203(k) loan is a government-backed mortgage that allows you to finance both the purchase or refinance of a home and the cost of renovations, repairs, or improvements into a single loan, with the funds for renovations held in an escrow account.
Like most loan programs there are eligibility factors including credit score and downpayment requirements. It’s also important to note that these types of loans typically can only be used on a primary residence not an investment property or a vacation home.
But with anything, there are some cons to be aware of if you’re contemplating going this route. 203(k) loans may have higher interest rates and closing costs compared to standard FHA loans. Also, the process can take longer than a standard mortgage due to the additional steps involved in renovation planning and oversight.
My advice is to call your local lender and they will be able to give you all the information about how these loans work and if it’s a good fit for your situation. I might add that finding a lender that is experienced in doing these loans is very important as they require more attention than a typical home loan and can be more complex due to the need for renovation estimates and inspections. Ask your agent what they know and who they would recommend for this type of loan program, but don’t let the perfect home slip away until you research your 203(k) options.
My guess is that if you’re willing to put in the work of doing a renovation you’ll be ready for a little extra work on the loan side too. Best of luck to you both on your dream “Fixer Upper”