How to Get a Construction Loan for Buying a Fixer-Upper?

How to Get a Construction Loan for Buying a Fixer-Upper?

If you have found your dream home that is in need of some serious rehab, buying a fixerupper would be a right option. But what if you don’t have the savings to cover both a down payment and a renovation? Consider financing your fixer-upper to ease the process of buying and fixing-up your dream property.

There are multiple mortgage programs that you can use to buy a fixer-upper. These are loans that help in improving your home’s value by combining your mortgage with the cost of remodeling work. However, you need to qualify for these short-term construction loans.

These loan programs include after renovation property value to access the mortgage size you qualify for.

Here are multiple mortgage programs that enable you to buy and renovate a fixer-upper.

FHA 203(K) & HomeStyle Renovation Mortgage Programs These programs enable home buyers to finance the cost of both a home and remodeling work with a single mortgage. With the FHA 203(K) program, the value of the property is determined by the value before the rehabilitation project and the project cost. With the

HomeStyle Renovation program, the value of the property is the lesser of the purchase price and renovation cost.

Construction Loan This is a short-term loan, typically six to twelve month, with a higher interest rate than your mortgage. However, you are required to only pay interest. A borrower must qualify for both the mortgage and the construction loan to purchase the property.

Construction to Permanent Loan A construction to permanent loan (C2P) is a good alternative to a borrower struggling with two different loans for constructing and renovating a home. This loan program allows the borrower to have one mortgage, arrange a permanent mortgage way before completing property construction, minimize closing costs, and fix the interest rate for six months to a year in advance of project completion.

Take-out Mortgage after Completing Remodeling Get a permanent take-out mortgage to return the construction loan and refinance the original mortgage. The value of the property determines the level of mortgage you qualify for. However, you may not be able to qualify for a permanent mortgage if your financial profile changes during the course of the remodeling process.

In addition to these useful tips, consider making a lower down payment, getting a mortgage through a hard money lender or a private lender, and buying a home based on its current fair market value. To know more about Fixer-Upper and Construction Loans, leave your comments below!

Original Source: https://medium.com/@communitylendinggroup2727/how-to-get-aconstruction-loan-for-buying-a-fixer-upper-395bfe99e4e3