Helpful Mortgage And Real Estate Advice

Renovation Home Loans Program

Renovation Home Loans are the perfect way to make a likeable home into a lovable one. These homes may not be perfect when a borrower first buys them, but they can evolve into the ideal living space at a more than reasonable cost.

Many of these loans originate not only to improve the quality of a single residence, but to increase the sellability of an entire neighborhood. Over time, some residences have simply been abandoned or neglected resulting in the steady depreciation of home and land values.

Perhaps the greatest feature of a Renovation Home Loan is that the house does not have to be in perfect condition in order to be financed. Finances are made available so repairs can be made to bring a building up to code. This means as long as the foundation is intact, homes may qualify for Renovation Home Loans.

FHA 203k Rehab Loans

This is a widely known program that allows avid homebuyers to finance up to $35,000 for home renovation purposes. Borrowers are then allowed to hire contractors at their own discretion to make repairs, upgrades, and additions to their residence. FHA 203k Rehabilitation loans are one of the most popular loans around for today’s first-time homebuyers who often seek homes in need of improvement.

Eligibility Requirements:

  • Maximum Loan-to-Value (LTV) is up to 110% after improvements.
  • Credit score of 640 or above.
  • Debt-to-Income (DTI) ratios with front end or house ratio not exceeding 28-31% and the back end or total DTI of 43%.
  • A qualifying property that was built no less than 1 year ago.
  • Single or 1-4 unit properties that will convert to a multi-property.

**The owner/occupant of individual condominiums can qualify while the investors may not qualify for this program.

The FHA Renovation 203k Loan may also be used for a second home or an investment property, but the property must be approved by the FHA first.

Fannie Mae HomePath Loans

HomePath mortgage is a program established by Fannie Mae for borrowers to have both the purchase and renovation amount wrapped into one single loan. The maximum loan amount for moderate renovation is up to $35,000 in repairs or up to 35% of the future value. Fannie Mae aimed to make their loan option more appealing than a typical FHA loan in 3 ways:

  • Smaller down payments. A minimum down payment of 3% versus 3.5% with FHA loans.
  • No Private Mortgage Insurance (PMI) required if less than 80% LTV.
  • Appraisal value is also not required, so the hassle of finding a certified loan appraiser is eliminated.

Unlike other loan programs, Fannie Mae HomePath is a perfect loan for first-time homebuyers given all the advantages. With Fannie Mae HomePath, the occupancy status can be a second home or an investment home, and does not need to be occupied as primary residence.

Eligibility Requirements:

  • Loan-to-Value (LTV) up to 97%.
  • Debt-to-Income (DTI) cannot exceed 45%.
  • Minimum credit score of 620 for 80% or lower LTV and a minimum score of 660 for 80.01% and above LTV.

All-in-all, this mortgage program is flexible, has few restrictions, and is great for an investment property. Fannie Mae HomePath Loans make it easy and stress free for borrowers to get adequate financing.

Fannie Mae HomeStyle Loans

Not only does Fannie Mae offer the HomePath loan, but another program called HomeStyle mortgage. This program caters to buyers who are interested in purchasing a home in need of moderate renovations or for current Fannie Mae approved homeowners trying to renovate their Fannie Mae property.

Eligibility Requirements:

  • Does not require Private Mortgage Insurance if LTV is 80% or below.
  • LTV is taken into consideration after renovation is completed (great for underwater homeowners). Up to 95% for primary residences, up to 90% for second home, and up to 75% for investment properties.
  • DTI must not exceed 45%.
  • Down payment of 3% and 20% required for borrowers who do not want mortgage insurance.
  • Requested financing must not exceed $417,000 (depending on state).
  • This loan type often approves luxury items such as funding for pool and spa renovations.
  • Repairs and renovations must be completed within 6 months, and cannot exceed 50% of the after improved appraised value.

Energy Efficient Mortgage (EEM)

More and more borrowers are investing in new technology that will cut annual energy expenses. These investments prove long-term results with high paybacks in the future. Energy Efficient Mortgages first originated back in 1992 as a pilot program, and later expanded nationwide in 1995 due to great success.

An Energy Efficient Mortgage (EEM) program allows homeowners to acquire additional funding, with zero down payment, to improve the home’s efficiency on energy. By making this change to a property, many homeowners are finding that this in fact does help them decrease their utility bill, and even reduce emissions.

The additional benefits include:

  • Gives borrowers the ability to pay for energy efficient upgrades and home improvements over the life of the loan.
  • Allows refinancing into a fixed-rate mortgage (rates and payments usually does not increase over time).
  • Results in higher value and a better ability to sell in the future.

The eligibility requirements for an FHA Energy Efficient Mortgage is the same as any standard FHA loan. However. the down payment for a combined FHA EEM purchase loan usually requires only a 3% down pay. If you already have a FHA mortgage and wish to utilize the Energy Efficient Streamline Refinance; equity usually is not required.


How does Loan-to-Value effect mortgage rates?

Loan-to-Value (LTV) is one of many risk factors that banks take into consideration when originating loans that are secured by real property. LTV is a measure of the amount of equity in a property compared to the loan balance. Interest rates tend to be more favorable for certain mortgage programs based on loan scenarios where the borrower has more equity or a larger down payment.

Is the FHA 203k Rehabilitation Loan good for renovations only?

The 203k loan does more than rehabilitate a home, it is also a great loan choice for non-distressed properties that is in need of a little remodeling work done. Other benefits include no need for appraisal, as well as lower minimum credit scores for approval.

Are borrowers allowed to renovate a pool with a Renovation Home Loan Program?

Yes. With the Fannie Mae HomeStyle Loan, many buyers are approved for funds that can repair, fix or upgrade luxury items. These additions may include pools, spas and more.

Can a buyer take out more than one Energy Efficient Mortgage?

Homeowners can take out numerous Energy Efficient Mortgages as long as they are approved. These special loans can be added to any 15 or 30 year fixed-rate or adjustable mortgage. In this case, approved loan rates may even exceed the FHA mortgage limit as long as the overage amount includes all energy efficient planned improvements.