We recommend that you review the FHA 203(k) and Fannie HomeStyle Renovation mortgage programs. These programs enable you to finance the purchase of a home or refinance an existing mortgage and include the cost of significant home renovations or improvements in the loan amount. We provide thorough overviews of the FHA 203(k) Home Loan Program and Fannie Mae HomeStyle Renovation Mortgage Program on FREEandCLEAR and also review the pros and cons for the FHA 203(k) and HomeStyle Renovation programs. These mortgage programs would enable you to finance your home improvements; however, there are several challenge you need to overcome to qualify.
Credit Score. The FHA 203(k) and Fannie Mae HomeStyle Renovation programs require a minimum borrower credit score of 620, although under certain circumstances the FHA 203(k) Home Loan Program permits lower borrower credit scores. You should check with lenders in your area that offer these programs to understand their minimum credit score requirement but you may need to wait until your credit score improves moderately before you apply.
Cash-Out Refinance / Debt Consolidate Refinance. Neither the FHA 203(k) nor the HomeStyle Renovation programs permit cash-out mortgages or debt consolidation refinancings, even if you use the mortgage to consolidate student loans. Both programs allow you to refinance existing debt on a property such as a mortgage or home equity loan but unfortunately you cannot use them to consolidate other debt or take cash-out of your home.
Owner Occupied Mortgage. The FHA 203(k) program only applies to owner occupied mortgages which means you are required to live in the property being financed. The HomeStyle Renovation program applies to both owner occupied and non-owner occupied mortgages which means you are not required to live in the home. If you intend to live in the home after the improvements are complete then you should be eligible for both programs but this is something to consider before you contact lenders and apply for the programs.
Despite the challenges outlined above there may be some financing solutions available to you. One option is to refinance your student loans with a home equity loan as an initial step and then refinance the home equity loan with an FHA 203(k) or HomeStyle Renovation mortgage in six-to-nine months to pay for the property renovations. Although the FHA 203(k) or HomeStyle Renovation programs do not permit debt consolidation refinancings they do permit you to refinance existing debt on a property such as a home equity loan. So in this scenario you would effectively consolidate your student loan debt into your mortgage but it requires the interim step of obtaining the home equity loan to pay off your student loans. On the positive side, your credit score could improve in the six-to-nine months in between when you get the home equity loan and when you get the home renovation mortgage. Your best lender option for home equity loans are usually local credit unions. They offer competitive terms and potentially more flexible qualification requirements than a large bank.
In addition to credit unions, you should also contact SoFi, which is a lender that specializes in student loans and mortgages. SoFi recently introduced a new program that enables you to consolidate your student loans into your mortgage and they also offer unique student loan consolidation programs. Unfortunately, SoFi typically focuses on borrowers with higher credit scores so you may not qualify for their programs, although it cannot hurt to contact them. SoFi is featured on the INTEREST RATES table on FREEandCLEAR.
Please note that you may run into the same challenges due to your credit score, debt consolidation and other factors when you apply for a home equity loan or mortgage through a credit union or SoFi as you would with a mortgage through a traditional lender. If credit unions or SoFi are unwilling to lend to you, you may want to consider using a hard money lender to obtain the home equity loan to pay off your student loans. Hard money lenders are willing to work with credit-challenged borrowers with unconventional lending circumstances. The downside of a hard money loan is that your interest rate and fees are significantly higher than a loan provided through a traditional lender such as a credit union or bank. In your situation you would refinance the hard money home equity loan within six-to-nine months with an FHA 203(k) or HomeStyle Renovation mortgage but you should fully understand and carefully consider the extra costs and risk associated with a hard money loan. In general we advise borrowers to avoid hard money loans unless they are absolutely necessary but they do serve a purpose in certain situations.
Finally, we always recommend that you contact local lenders to understand how they would handle your unique situation. You can review lenders in your area by clicking INTEREST RATES We advise you to contact at least four lenders as borrower qualification guidelines can vary. For example, CloseYourOwnLoan is a lender on our rate tables that works with credit-challenged borrowers.