Key Differences Between Home Renovation Loans

Success Mortgage Partners - With Kristin Jamieson

FHA 203K loans and conventional renovation loans actually have a lot in common. You should, however, know the two main differences if you're considering a loan with rehab costs built in.

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We had another question from an agent that we wanted to address today. The question was, "When dealing with a repair loan, I have made it through an FHA 203K; however, is there a conventional product as well, and what are some of the differences?"

This is a great question. Yes, conventional does have a repair loan like FHA's 203K, and it's called the Fannie Mae HomeStyle Renovation loan. One of the biggest differences between a 203K loan and a conventional renovation loan is the same difference between an FHA loan and a conventional loan. With FHA, the private mortgage insurance lasts for the life of the loan, no matter what your down payment is, as opposed to a conventional loan, where PMI will drop off when your loan balance reaches 78% of the purchase price. This is just one of the benefits of a conventional loan over an FHA loan.
Additionally, FHA 203K loans only let you make repairs to the property itself; you couldn't add a pool or a fence since the repairs must be within the structure of the home. Conventional home renovation loans allow you to do pretty much whatever you want with the property, so you could install a pool or fence or update the landscaping.

Other than two big differences, both loans basically parallel each other.

Other than these main differences, both loan types basically parallel each other in terms of their guidelines. Both loan programs will lend on the total price of the project, meaning the price of the home itself and the cost of the repairs.

With these two loan packages, some people get confused about the involvement of an HUD consultant. With the FHA 203K loan, an HUD consultant will only be required when the total cost of the rehab exceeds $35,000. This actually parallels the Fannie Mae HomeStyle Renovation loan in that if the total cost of the rehab project is more than $35,000, we are going to require an HUD consultant to oversee the project along with the general contractor making the repairs.
Now, this is just a general breakdown of Fannie Mae HomeStyle Renovation loans in a nutshell. Feel free to share this information with your clients or anyone you know who is interested in a home renovation loan! A lot of different factors come into play with this type of loan, so if you have any questions at all about them, give me a call or send me an email. I would be more than happy to help you out.