Borrowers can finance renovations that cost up to 75 percent of a home's value after renovations, as long as they qualify for the full loan amount. You can add renewal costs to your total mortgage at the time of buying a home, as long as the mortgage program you choose allows the expense. The Federal Housing Administration (FHA) and the Federal National Mortgage Association (Fannie Mae) are government agencies that sponsor rehabilitation mortgage programs. Private lenders can also offer similar loan products.
Residential home loans are generally approved based on the appraised value and the condition of the property being financed. Mortgage lenders generally require renewals to be completed before a home loan can be approved and closed. The Federal Housing Administration (FHA) 203 (k) loan program offers an all-in-one mortgage loan to purchase or refinance a home and renovate it based on the assessed value of the property under repair. Once you have a budget for renovations, you can begin to consider your options for adding that cost to your mortgage.
Doing so would add the remodeling costs to your initial loan amount (the money needed to purchase the home), creating a new combined total balance for your mortgage. Tried and true renovations are kitchens and bathrooms, two places in your home where improvements are highly sought after by homebuyers. And you certainly shouldn't see yourself turning to a high-interest, unsecured personal loan (often marketed as a home improvement loan) or a credit card to finance the cost of your renovation. It may be more difficult to predict the extent to which a renovation will improve the value of your home, but there are certain types of renovations that generally provide more value than others.
Proceeds from the loan can be used for home improvements, such as improving kitchens and bathrooms, meeting the needs of people with disabilities, adding, making structural changes, or installing energy-efficient elements. This loan works for homeowners who have to pay several large payments over time on a large home improvement project. The Fannie Mae HomeStyle Renovation loan allows borrowers to purchase a place in need of repairs or refinance their existing home loan and get money for improvements. Fannie Mae's HomeStyle loan can be used to upgrade a vacation home or investment property, and any renovation or repair is eligible for financing, as long as it is permanently affixed to the property and adds value to it.
For some homeowners, a traditional cash-out refinance isn't going to be the best way to pay for home improvements.