If you want to get a mortgage on a house that you plan to renovate, you will first need to carefully consider your options.
Here are six tips to help you get started.
1. Apply for a Renovation Mortgage
When buying a property that you plan to renovate, you have the option to either get a standard mortgage and take out a separate loan for completing the renovation work or apply for a specialist renovation mortgage.
That means you can take out a single loan for your mortgage and the repair work you need to complete. So, spend some time figuring out whether a renovation mortgage is your best option.
2. Save Up for a Larger Down Payment
One thing you need to be aware of when applying for a home renovation loan is that you will need to pay a slightly larger down payment.
That is because the loan will be based on the post-renovation value of the property, not the house’s purchase price. Therefore, make sure you save up a healthy down payment before you apply for a renovation mortgage.
3. Check What Is Covered with a Renovation Mortgage
Renovation mortgages often have restrictions regarding the types of repairs and upgrades you can make to a property. So, before you apply for a renovation mortgage, make sure that you know exactly what is and is not covered under the loan terms.
If you do not, you could find you have to take out an additional loan to spend the money on the types of renovation work you plan to complete.
4. Find the Right Property to Renovate Before You Apply for a Renovation Mortgage
You also need to be aware that it can be difficult to get a renovation mortgage for every house that requires renovation. For instance, you could find that lenders will not accept your application if the house you intend to purchase is derelict, uninhabitable, or needs conversion.
Therefore, check what a mortgage you are considering applying for covers in terms of renovation work and consider buying a house that needs less renovation work doing to it in order to secure a mortgage.
Also, it is worth mentioning that if the house requires work, you may be able to get a mortgage in which the lender retains some funds until you have completed the essential repair work.
In that case, the property would need to be reevaluated by the lender after initial repairs have been completed before the remainder of the funds can be released.
5. Have a Contingency Plan in Place
Even when you are successful in attaining the renovation mortgage you want, you could find you need additional funds to complete all of the work. That is because renovation projects are notorious for going over budget.
Therefore, it is always a good idea to have a contingency plan in place for paying for additional expenses, such as having savings in reserve or knowing what other loan options are available to you.
6. Consider Taking Out a Separate Mortgage and Home Renovation Loan
Getting separate loans might be a better idea. That means you would apply for a mortgage loan online for a standard but competitive mortgage and apply for a separate home renovation loan.
It may be easier to qualify for the two loans. Plus, you can avoid the large down payment that is typically required for renovation mortgages and avoid the administrative headaches that can come with renovation mortgages.
By getting a separate home improvement loan, you will not require the mortgage lender’s approval for the repairs and renovations that you want to complete.
Home renovation loans that you could apply for include the Fannie Mae HomeStyle loan, the government-backed FHA 203(k) loan, a jumbo renovation loan, an EZ “C”onventional loan, and a USDA Rural Development Home Repair Loan.
You could also take out a personal loan to pay for your house renovation project.
The Takeaway
You should carefully consider all of the above tips to determine what the best course of action is. It could be best to take out a renovation mortgage or it may make more sense to apply for a standard mortgage and a separate loan that you can use to complete the renovation work.
Once you have determined the best route to take, you can begin your exciting adventure of buying and renovating a house.
