Fixer-uppers. Their affordable price makes them attractive to home shoppers like you but their state of affairs (read disrepair) might not appeal to banks. What to do? You can try government mortgages.
Aside from standard purchase/refinance loans, the FHA, VA and USDA back, insure or make (in the case of USDA) mortgages for buying and/or improving fixer-uppers. These government mortgages for home rehabilitation might just fulfill your dream of having just like that lovely home across the street.
The Government Mortgages for Home Repairs
Government-backed loans are traditionally popular for their more flexible and lenient guidelines than most conventional/conforming loans. Their mandate is to help consumers buy a home despite their income, credit, or (lack of) down payment.
With prices for fixer-uppers a steal, it’s understandable why some opt for these homes, repairs and all. Moreover, these homes are financeable with the help of the government.
FHA 203k Loans
They are for purchasing and turning a fixer-upper home with scores of allowed improvements.
Simpler, less costly home projects can fit the bill of a streamline 203k loan of at least $5,000. These repairs usually include but are not limited to replacing roofs, upgrading HVAC systems, painting the exterior and interior of the house, replacing the septic tank, and installing appliances.
Then there’s the standard 203k loan that covers more complex repairs involving walls, room additions, and improvements that take more than 30 days and keep you out of the home until such time as the work is finished. These renovations are capped at $35,000.
The home will be appraised based on the work to be done, called after improved value. Still, the FHA’s down payment remains as low as 3.5%, credit doesn’t have to be stellar, and debt-to-income ratio can go as high as 31%/43%.
VA Home Loans
VA-guaranteed loans allow for the simultaneous purchase and improvement of a home.
For instance, Native American Direct Loans (NADLs) cater to Native American veterans to build homes according to their wishes.
These direct loans are also used to buy a home with repair or improvement costs that may be rolled into the loan.
Being VA loans, NADLs have no down payment, no private mortgage insurance, and low closing costs. They are 30-year fixed-rate mortgages with rates at 4%.
The VA also offers grants for veterans with disabilities to adapt their homes and make them more accessible (barrier-free).
USDA Repair Loans
Among the three government mortgages, USDA Section 504 loans are strictly to finance repairs on existing owner-occupied homes. These repairs can go toward removing health and safety hazards.
Families with very low income are the target borrowers of the loans up to $20,000, along with very-low-income elderly who may be eligible for grants not exceeding $7,500. Grants may be combined with loans if a borrower shows that he/she can’t repay loans fully.
Repair loans have fixed rates of 1% and repayment terms of 20 years. Grants must be repaid if the recipient sold the home subject to the grant within three years.
- FHA loans for purchase and deep rehabilitation
- VA loans for veterans looking for construction/home improvement loans
- USDA loans for repairs only, grants may be included
So, which government loan is it gonna be?