Buyers Turn to Loans for Remodeling Cash

January 27, 2016

A limited inventory of existing homes for sale means that buyers may not be able to fulfill every desire on their wish list. That's why real estate professionals should be ready to help clients who purchase a home with the intent to renovate what they don’t like after they move in.

Renovating a home post-closing may sound like a daunting task – and a pricey one at that – to many buyers. But that’s why lenders are increasingly touting mortgages that allow borrowers to purchase a house and renovate it under one loan. FHA's 203K and Fannie Mae’s HomeStyle loans are two popular options for home buyers wishing to finance their home and its renovation in one lump sum.

With renovation financing, lenders consider the purchase price (supported by an appraisal) and then add onto that the costs of the proposed improvements, using builder cost estimates or architectural plans. The appraiser then determines what the value of the home would be after the improvements are made. The financing, therefore, is based on the “after improved” value.

“A lot of first-time home buyers are bargain hunting, but thin inventory does not give them much opportunity,” says Matt Gratalo, loan originator at HomeBridge Financial Services. “Renovation financing lets them buy the ugly duckling house at a discount and turn it into the neighborhood swan.”

Current home owners can also refinance using renovation financing to make improvements to their home.

Source: “The Renovation Revolution: 203K and HomeStyle Mortgage Loans,” (Jan. 19, 2016)