Washington – RealEstateRama – Buying a home and raising a family is part of what many consider the American dream. However, buying a home has become increasingly complicated as supply dwindles or stagnates and demand increases. As more Americans reach adulthood, the rise in demand without an equal increase in supply has led to increased median home prices for most counties.
One solution that many Americans have resorted to is buying fixer-upper homes to reduce the initial cost of homeownership. However, what ends up happening is that they have to find a way to finance the upgrading and repairing of their fixer-upper. Thankfully, Government loans usually used to buy homes also offer loans targeted explicitly at funding repairs and upgrades to the home.
These loans come in the form of FHA 203k and VA Rehab home loans protected and guaranteed by the United States government. Eligibility for these loans varies depending on the loan as they are for different types of applicants.
FHA 203k Home Loans
Guaranteed by the Federal Housing Administration (FHA), and work by letting applicants borrow more than the property is worth using that money to make repairs and improvements to the property. Calculations for how much is needed to fund repairs will be by the contractor that will do the work. Also, these loans provide the same benefits as regular FHA Home Loans, which include:
- Low 3.5% down payments.
- Eligible FICO scores can be 580, with specific lenders going even lower.
- Borrowers with prior bankruptcies (Chapter 7 & 13) are still eligible as long as they meet eligibility standards.
- Lower Closing Costs.
FHA loan limits are still applicable to FHA 203k loans, with limitations depending on the county and the type of property the loan is being used to purchase/ upgrade.
Additionally, there are two types of FHA 203k loans, streamlined and regular programs. The most significant differences between these loans are that streamlined loans are for non-structural repairs like appliances, flooring, and wall paint. In contrast, regular 203k loans are for structural repairs/ maintenance of the property.
Repairs that these loans can cover include:
- Remove health and safety standards from the property.
- Increase energy efficiency.
- Adapt property for disabled residents.
- Repair plumbing on the property.
- Change simple things like carpets, wall paint, and appliances.
VA Rehab and Renovation Home Loans
VA Rehab Loans are for Veterans, Active Duty Service Members, and eligible surviving spouses. These loans can also finance a home’s purchase, and many real estate experts consider them the best government loans available. Just like regular VA home loans, these loans offer benefits like:
- No down payment requirements.
- No prime mortgage insurance.
- Low-interest rates.
- Lower monthly mortgage costs.
- No prepayment penalties.
In addition to having the same benefits as regular VA home loans, VA Rehab Loans can fund the repairing and upgrading of eligible properties. This loan can also improve basic livability by funding the repairs and upgrades with things like:
- Removal of lead paint.
- Fix and improve insulation.
- Update the home for residents with disabilities.
- Repair and repair flooring.
- Remove safety and health hazards.
Additional requirements for these loans are that any property fixed is the applicant’s primary residence, with all repairs completed within 120 days from the closing date. Contractors trying to repair a home with a VA Rehan loan must have a valid VA ID number.
Phil Georgiades is the CLS for Fedhome Loan Centers, a government-sponsored brokerage specializing in first-time buyer home loans. He has been working in the real estate industry for more than 22 years. For more information about government loans or submit an FHA application, call us at (877) 432-5626.