6 fixer-upper loans
Fixer-upper loans — also commonly known as renovation loans — are mortgages that typically offer you enough money to buy a new home and roll in the repair costs based on how much it’s expected to be worth after the renovation. Each fixer-upper loan program comes with its own qualification rules.
Fannie Mae HomeStyle renovation loan
The Fannie Mae HomeStyle® Renovation loan allows you to borrow up to 97% of the cost of buying and fixing up your home, which means you may only need a 3% down payment. Your loan amount is based on the cost of the renovation plus your purchase price or the expected value of your home after it’s renovated.
You can use the HomeStyle loan to cover the cost of everything from needed repairs and energy upgrades to luxury items and custom landscaping. An added bonus: You’ll qualify up to the conforming loan limits, giving you more borrowing power than the lower loan limits set on government fix-up products. You can choose a fixed-rate 30-year or 15-year term, or an adjustable-rate mortgage (ARM) option, and need a minimum credit score of 620 to qualify.
THINGS YOU SHOULD KNOW
You’ll need to choose a general contractor in most cases, and the lender will need to approve your project before closing on the loan. If you have some fix-up skills, you can do some of the work yourself as long as it doesn’t make up more than 10% of the property’s value.
Freddie Mac CHOICERenovation loan
Like the HomeStyle loan program, Freddie Mac’s CHOICERenovation loans allow you to finance both the purchase (or refinance) and renovation cost of a home with a down payment as low as 3%.
The loan amount is based on the home price plus the cost of renovations, or the appraised value of the home after renovations — whichever is lower. Renovations must be completed within a year of closing on the loan. Freddie Mac requires a 620 minimum credit score.
Freddie Mac CHOICEReno eXPress loan
If you’re tackling a smaller fixer-upper project, Freddie Mac’s CHOICEReno eXPress loan streamlines the standard renovation process by allowing lenders to approve you for the mortgage without preapproval from Freddie Mac.
The renovation costs are capped at 10% or 15% of the value of your home, depending on where you live. Down payments may be as low as 3%, and you’ll need at least a 620 credit score to qualify. One caveat: You must finish the work within 180 days, versus the 12 months on the CHOICERenovation loan.
FHA 203(k) loan
The FHA 203(k) loan program insures mortgages made by private lenders approved by the Federal Housing Administration (FHA) to cover the cost of buying the property and fixing it up. You can also refinance with a 203(k) loan to renovate your current home.
Make sure you check the FHA loan limits in your area — you won’t be able to borrow as much as you can with the Fannie Mae and Freddie Mac renovation loans detailed above. The credit score minimum is much lower for the FHA 203(k) program: You’ll need a 580 score with a 3.5% down payment and a minimum 500 if you can make a 10% down payment.
There are two types of FHA 203(k) loans: the standard and the limited. The standard 203(k) loan requires you to use an approved 203(k) consultant to help plan the project. These consultants have experience as home inspectors, contractors, architects or engineers and will review or prepare plans for the renovation and estimate the costs.
The limited 203(k) is for smaller renovations — under $35,000 in most places — and doesn’t require a consultant. The FHA 203(k) loan is the only renovation loan program that allows for a tear-down, as long as the foundation remains in place.