Shopping for a new home is an amazing experience. For many first-time homebuyers, getting to finally see the homes they’ve long researched is the best part of the process. To expand that search, consider combining your purchase loan with a renovation loan and fund improvements that will transform an overlooked fixer-upper into your dream home.

Often overlooked by first-time homebuyers, let’s dive into why you should think about a fixer-upper and how you can turn these hidden gems to the home you’ve always wanted!

 

CUSTOMIZE YOUR NEW HOME

There are several benefits to homeownership that may appeal to you as a buyer. You may want to build equity and gain the financial stability that comes with a home. Perhaps you want the additional space for a growing family. One benefit that high on also most every first-time buyers’ list is the ability to make you home your own.

As opposed to a rental, your home is yours to change and this is even more so with a home that needs extra TLC. As you plan the repair that will complete your home, you’re also leaving your fingerprint on its look and function.

For example, a new paint job lets you choose the color and texture you want. Major changes, like a complete kitchen remodel, means that the appliances, materials used and even the placement of items, is up to you.

Purchasing a home that needs attention gives you the structure you need move quickly, but also the extremely rewarding opportunity to craft your home as you see fit.

 

FIXER-UPPERS MAY GIVE YOU MORE FOR LESS

If you’re a looking at the purchase process through a strictly financial lens, or even as an investment, buying then upgrading a home may make the most sense for your budget.

In many ideal neighborhoods, homes in need of repair cost substantially less than brand new ones, or lived-in homes ready to move in. This give you the chance to spend less while focusing on in-demand locations. Even if you add the cost of needed repairs, prices may remain lower than an already finished home – potentially saving your thousands on your purchase.

For an investment home, adding upgrades after your purchase can significantly boost its resale value. The exact return on your home improvement investment depends on a number of factors, such as your local housing market, but these improvements can make a serious difference in how much you recoup:

  • Kitchens and baths remodels
  • Home maintenance repairs (ex. leaky roof)
  • Exterior repairs that add “curb appeal”
  • Additional space such as an extra bathroom

 

LOAN OPTIONS

You’ve decided to add homes in need of repair to your search. Now’s the time to discover how to pay for those customizations and improvements. For first-time homebuyers, there are two renovation loans options to focus on. Both offer funds for improvements while also combining with your purchase loan to provide one loan with one set of closing costs. These are:

  1. FHA 203(k) loans
  2. The Fannie Mae HomeStyle® loan

FHA 203(k) loans are renovation loans backed by the federal government’s Federal Housing Administration (FHA). FHA 203(k) programs:

  • Are only applicable to primary residences
  • Focuses on repairs and fixes as opposed to “luxury” improvements
  • Repairs have to be completed within a year
  • Can combine with a purchase loan so you can buy and repair a home before moving in

A noteworthy benefit of FHA loans for first-time homebuyers is that their financial requirements are more flexible. Credit history can be a major hurdle for many who are searching for their first home. The FHA loan program was established as a remedy to this issue and aims to help borrowers with less-than-perfect credit.

Fannie Mae HomeStyle® loans are conventional loans that are backed by private lenders, not a federal government agency. This loan is technically capped at 80% of your finished home’s value, which is different from the value you pay for your home at purchase.

This means that if your home is worth $250,000 now, but improvement will bump it up to $300,000, you can borrow up to 80% on $300,000 before the project has even begun.

Unlike FHA 203(k) loans, you can fund luxury improvements such as:

  • An inground pool
  • A remolded kitchen or bathroom
  • Room additions
  • A backyard deck

In addition, you can use a HomeStyle® loan to renovate an investment property as well as your primary residence.

 

THE RIGHT RENOVATION SOLUTION FOR YOU

The right renovation option is the one that fits your unique needs. In general, FHA 203(k) loans provide flexibility on your credit history while a FNMA HomeStyle® loan offers more repair options.

As one of the nation’s top renovations lender — Homebridge has been name the top FHA 203(k) lender by HUD in 2017, 2018 and 2019 — we understand how to deliver service that goes beyond your expectations. Our mission is to make your dream homeownership a reality, and we will work with you to ensure that happens.

To get started on your homeownership journey, contact us today!

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