What are the best mortgage options to buy a home that needs major repairs? I am looking to buy a home and I do not think it will pass inspection.
You have two mortgage options for financing the purchase of a home that requires significant renovations: 1) fixer upper mortgage program, or 2) fix and flip mortgage program.
Fixer upper mortgage programs enable you to include the cost of significant home repairs or renovations in a single mortgage used to purchase the property. Additionally, these programs use the post-renovation property value to calculate the loan-to-value (LTV) ratio that determines the maximum loan amount permitted. Using the post-renovation property value enables you to qualify for a higher loan amount. Plus, using a single mortgage to finance both the home purchase and property repairs saves you significant money and time.
Fixer upper mortgage programs include the Fannie Mae HomeStyle Renovation Program, FHA 203(k) Program and Construction-to-Permanent (C2P) Programs. We provide a summary of fixer upper mortgage programs on FREEandCLEAR for you to review. Please note that these programs may impose loan limits as well as limits on the value of property renovations so make sure your project fits within program guidelines. It is also usually easier to qualify for these programs if the property is your primary residence or a second home and not a rental property.
Fixer upper mortgage programs are provided by traditional lenders such as banks, mortgage brokers and credit unions. You can review lenders in your area by clicking MORTGAGE RATES We advise you to contact at least four lenders as not all lenders offer fixer upper mortgage programs. Plus, shopping lenders is the best way to save money on your mortgage. You can also use our FREEandCLEAR Lender Directory to search for lenders by state, lender type and loan program. For example, you can search for lenders in your state that offer the HomeStyle Renovation Program, FHA 203(k) or construction loans.
If a fixer upper mortgage program does not work for you, then your other option is a fix and flip mortgage. Fix and flip mortgages are shorter-term loans that enable you to finance a property purchase and significant renovations with a single loan. The difference between a fix and flip loan and a fixer upper mortgage program is that fix and flip loans are temporary financing (until the renovations are completed) and fix and flip loans charge a higher interest rate and fees. Because they are expensive and have a shorter loan term, fix and flip loans are usually refinanced with a permanent mortgage when the property renovations are completed or the loan is repaid when the property is sold.
Fix and flip mortgages are provided by hard money lenders which are also known as private money lenders. We provide a comprehensive overview of private money mortgages as well as Six Things You Should Know About a Private Money Mortgage on FREEandCLEAR. If you apply for a loan with a private money lender be sure to fully understand the higher interest rate, costs and fees, including any pre-payment penalty, charged by the lender. You can also use our FREEandCLEAR Lender Directory to search for private money lenders in your state.
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