If your home needs extensive repairs or has to be completely rebuilt, you'll want to examine these construction, renovation and home improvement loans. Some allow you to purchase or refinance your existing mortgage and build the cost of repairs into the loan. In this section we'll review the following products:
Fannie Mae HomeStyle® Renovation Mortgage
The HomeStyle® Renovation Mortgage allows the borrower to combine home purchase or refinance with the cost of renovating or repairing the home in one loan and with one closing. Instead of financing the renovation with a second mortgage or home equity loan, you get the lower interest rate of a first mortgage and only have to pay for one mortgage closing. You can also borrow an amount based on the value of the home after the renovations are finished, so you know you will have the funds available to do the job right.
Other costs related to a renovation may be added to the loan amount. For example, you can even finance the rent on another home or apartment to live in while the renovations take place. For home purchases, the loan amount can be based on the costs of the renovation project or on the as-completed value of the home after the renovations are finished. That means you can borrow more than the home's current value, knowing its value will increase after the improvements are finished.
Freddie Macâ€™s Renovation Mortgages
This product helps serve borrowers who need cash to repair, restore, rehabilitate or renovate existing homes, or to make improvements to a home they are buying. Freddie Macâ€™s Renovation mortgages offer a single mortgage with one set of closing costs to cover both purchase and rehabilitation, and allow up to six months of principal, interest, taxes and insurance covered by financing if the home is temporarily uninhabitable. A wide variety of rehabilitation for homes is covered.
FHA 203(k) Rehabilitation Mortgage
The FHA 203(k) Rehabilitation Mortgages can finance the purchase and rehabilitation of a home being purchased. This reduces costs for the borrower because only one closing is required. It also has several attractive advantages. HUD has recently released a streamlinedversion of this product that is less restrictive, so be sure to check it out as well. Key features include:
HUD's Title 1 Program
The Title 1 program is for light or moderate rehabilitation of properties, as well as the construction of nonresidential buildings on the property. This program may be used to insure such loans for up to 20 years on either single-family or multifamily properties. The maximum loan amount is $25,000 for improving a single-family home or for improving or building a nonresidential structure.
Only lenders approved specifically for this program by HUD can make loans covered by Title 1 insurance. While most lenders and contractors use this program responsibly, HUD urges consumers to use caution in choosing and supervising contractors conducting Title 1 repair or renovation work.
RHS (Rural Housing Services) Homeownership Direct Loan Program (Section 502)
Section 502 loans are used to help low-income households purchase homes. They can be used to build, repair, renovate or relocate homes, or to purchase and prepare sites ” including providing water and sewage facilities.
The Housing Assistance Council, a nonprofit corporation devoted to rural affordable housing, is a great resource for rural housing and loan program information. It offers the following guidance on Rural Housing Services loan programs at its website, www.ruralhome.org.
Contact your Rural Development State Office to find out the location of the local office closest to you, or 202-690-1533 or TTY, 800-877-8339.
RHS Mutual Self-Help Housing Loans (Section 502)
The Section 502 Mutual Self-Help Housing Loan program (a variation on the regular Section 502 Homeownership program) is for families who are unable to buy decent, safe, and sanitary housing through conventional methods. Families in this program a mutual self-help project do a substantial amount (approximately 65%) of the construction labor on each other's homes, under supervision. The savings from the reduced labor costs allow these families to own their homes. If families cannot meet their mortgage payments during the construction phase, the payments can be included in the loan.
RHS Guaranteed Rural Housing Loan Program (Section 502)
The Section 502 Guaranteed Rural Housing Loan Program serves rural residents who have steady, low, or modest income, and yet they can't get adequate housing through conventional financing.
These loans enable low-income and moderate-income rural residents to acquire modestly priced housing by buying a new or existing house, or buying a new manufactured home.
In this variation of the Section 502 program, RHS does not make a loan directly to an eligible borrower, but guarantees a loan made by a commercial lender. This guarantee substantially reduces the risk for lenders, thus encouraging them to make loans to rural residents who have only modest incomes and little collateral.
Interested borrowers should contact their local Rural Development office for more information on the program and a list of approved lenders. The loan application itself is made with the approved lender, and is subject to their schedule for loan approval.
RHS Rural Repair and Rehabilitation Loan and Grant Program (Section 504)
The Very Low-Income Housing Repair program provides loans and grants to very-low income homeowners to repair, improve, or modernize their dwellings or to remove health and safety hazards. Key features of this program include: