Do you want to purchase a home that is in need of repair, but you do not have the cash to get the job done? If so, a 203(k) home renovation loan may be the financial product that you need to make your home purchase. Not only does it cover the cost of the home, but it also gives you additional cash for all of those renovations that you need to get done. Here are some common questions you likely have about using a 203(k) home renovation loan.
Is There A Large Down Payment Requirement?
One thing to keep in mind about using a 203(k) home renovation loan is that it does require that you have some cash on hand for a down payment. More specifically, you'll need 3.5% of the home's value saved up as a down payment, and that is if you have a credit score on the high end. That percentage can easily go up if you have poor credit.
Can You Perform The Repairs On Your Own?
The main downside of using a 203(k) loan is that you will need a contractor to perform the work for you. Since you are paying for the home with a loan, the lender wants to ensure that the repairs are done correctly. You'll need to use certified contractors if you want to get a loan that covers your renovation costs.
Will Structural Renovations Be Covered?
A 203(k) loan is only going to cover renovations that don't change the overall structure of the home. Don't expect to use the cash to tear down a wall to make an open floor plan or add an addition onto the existing structure. You can use the money for minor remodeling, such as floor replacement, roof repair, appliance replacement, and even making your home more handicap accessible.
Can You Buy An Investment Property?
You will only be able to secure a 203(k) loan for a property that you plan to live in. If your goal is to fix up a property that is used for investment purposes, such as a rental or a flip, then you will not be able to secure the loan for your needs.
Can You Select The Terms Of The Loan?
Know that you will not be locked into a certain type of loan when using a 203(k) home renovation loan. You can get a 30- or 15-year fixed-rate loan or even an adjustable-rate loan. It really depends on what you are comfortable with paying back to the lender.
For more information, contact a home renovation loan provider.
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