Sometimes your dream home just needs a little TLC. If you find a fixer-upper at a great price, but don't have the cash to make needed repairs, relax. There are several programs that let you roll the cost of repairs into your mortgage.
FHA 203K Rehabilitation Insurance
While the Federal Housing Administration (FHA) normally only guarantees mortgages on homes that pass its strict appraisal standards, its 203K Rehabilitation Insurance (203K)and Energy Efficient Mortgage (EEM) programs let you borrow additional funds for improving your home. The 203K program insures a loan that includes both the cost of your home and money to pay for its repair. As the contractors complete their work, they receive payment from an escrow account established with funds from the 203K Loan. The EEM program helps buyers pay for improvements that make the house more energy efficient. Homebuyers can combine the 203K and EEM when taking out a mortgage.
USDA Rural Development Loans
If getting out of the city appeals to you, a loan guaranteed or issued by The U.S. Department of Agriculture (USDA) can help. USDA loans help people with low or moderate incomes get a home, usually with no money down. If your little house on the prairie needs some work, you can roll the cost of needed repairs made by licensed contractors into your 30 year, fixed-rate mortgage.
Veterans Affairs (VA) mortgages are an option if either of you has a military background. You can use your VA loan to buy, build, or buy and repair a home. The VA can also lend you extra money to improve your home's energy efficiency.
Construction to Permanent Loans
Some mortgage lenders offer loans that combine a traditional mortgage with financing for home construction or major repairs. The lender will first finance the repairs, and then will apply some of the fees to a mortgage loan. The advantage to this is that you'll only have to secure financing once, though your lender will want to make sure that both your home, proposed repairs and contractor meets its underwriting standards. There is also the risk of paying too much for the mortgage because you may lock yourself into working with a lender whose rates are higher than other lenders when you are ready to secure your mortgage.
- U.S. Department of Housing and Urban Development: Energy Efficient Mortgage Home Owner Guide
- The Mortgage Professor's Website: Pitfalls in the Financing of Home Construction
- U.S. Department Housing and Urban Development: 203k Rehabilitation Mortgage Insurance
- U.S. Department of Veterans Affairs: VA Home Loans - A Quick Guide For Homebuyers and Real Estate Professionals
- Forbes: The FHA 203(k) Loan: A Home Repair Loan And Mortgage All In One
Lainie Petersen writes about business, real estate and personal finance, drawing on 25 years experience in publishing and education. Petersen's work appears in Money Crashers, Selling to the Masses, and in Walmart News Now, a blog for Walmart suppliers. She holds a master's degree in library science from Dominican University.