Mortgage Rates
Refinance Rates
FHA Rates
VA Rates
Jumbo Rates
Adjustable Rate Mortgage Rates
Interest Only Mortgage Rates
Non-Owner Occupied Rates
Home Equity Loan Rates
null

How to Get a Mortgage for a Fixer-Upper

How to Get a Mortgage for a Fixer-Upper
Financing a fixer-upper property can be challenging because lenders are reluctant to offer you a mortgage based on the post-renovation value of the property.  In addition, getting a construction loan to finance property renovations and then another permanent mortgage to pay-off the construction loan after the renovations are completed can be costly and time-consuming.  Below, we outline multiple mortgage programs and options to help home buyers purchase and renovate fixer-uppers.  The construction to permanent (C2P), FHA 203(k) home loan and Fannie Mae HomeStyle Renovation mortgage programs covered below allow a fixer-upper buyer to finance renovation and remodeling costs without taking out a separate construction loan, which is a huge benefit to the borrower.  We also review additional approaches a borrower can use to get a mortgage on a fixer-upper.  We also provide a summary of fixer-upper mortgage programs on FREEandCLEAR.
1

Consider a Construction to Permanent (C2P) Loan

A construction to permanent loan, or C2P loan, enables a borrower to finance the cost of building a new home or significant renovations, including for a tear-down or fixer upper, with a single mortgage

A construction to permanent loan is a potentially attractive alternative to a borrower arranging two separate loans to build or renovate a home: one short-term construction loan to finance property renovations and a second, permanent mortgage that replaces the construction loan when the project is completed

Using a construction to permanent loan enables the borrower to have one mortgage closing instead of two, reduce closing costs, arrange a permanent mortgage long before completing property construction and lock-in the interest rate for the permanent mortgage six months to a year in advance of completing the project

Not all lenders offer construction to permanent loans but many do.  The best lenders for construction loans include regional banks, credit unions and banks where you have an existing relationship

Click INTEREST RATES to view lenders in your area and contact them to determine if they offer the construction to permanent (C2P) loans

2

FHA 203(k) or Fannie Mae HomeStyle Renovation Home Loan Programs

The FHA 203(k) and Fannie Mae HomeStyle Renovation Home Loan Programs enable home buyers to finance the purchase of a home as well as the cost of significant remodeling and repairs to the home with one mortgage

Both programs allow borrowers to finance the cost of fixing up a property without having to obtain a separate construction loan which can be costly, complicated and time-consuming to arrange

Both mortgage programs work well for home buyers looking to purchase a "fixer-upper"

With the FHA 203(k) Home Loan Program, the value of the property is determined by either the value of the property before the remodeling or rehabilitation project plus the cost of the project; or, 110% of the appraised value of the property after the remodeling project, whichever is less

The FHA 203(k) Program requires additional up-front and ongoing borrower fees

With the Fannie Mae HomeStyle Renovation Program, the value of the property is the lesser of the purchase price plus the cost of the renovations or the appraised as-completed value of the property

The FHA 203(k) Home Loan Program applies only to owner-occupied properties while the Fannie Mae HomeStyle Renovation Program applies to both owner-occupied and investment properties

These mortgage programs are offered through any approved lender. Not all lenders offer these programs but many do. Click INTEREST RATES to view lenders in your area and contact them to determine if they offer the programs

3

Purchase the Home for its Current Fair Market Value

If you decide to not use the construction to permanent (C2P), FHA 203(k) or Fannie Mae HomeStyle Renovation Home Loan Programs, the first step to getting a mortgage for a fixer-upper is to buy the property based on its current fair market value, before any remodeling or improvements are factored in

Without using one of the fixer-upper mortgage programs outlined above, most banks will not offer borrowers a mortgage that includes the cost of improvements. For example if you want to buy a fixer-upper that is worth $200,000 and make $50,000 worth of improvements, the bank will most likely only give you a mortgage based on the $200,000 value of the property before improvements

It is important that you only pay for the property based on what is worth today even though it will be worth more after you fix it up, because this is the way the bank thinks about your mortgage

FREEandCLEAR
Resources

4

Get a Construction Loan

After you purchase the property at its fair market value you can obtain a construction loan to finance the remodeling and improvements you want to do

A construction loan is typically a six-to-twelve month loan that charges a higher interest rate than your mortgage

Not all banks offer construction loans but many do and the bank that you use for the mortgage on the property may provide construction loans

A borrower must qualify for both the mortgage to purchase the property as well as the construction loan based on the borrower’s income and debt so it is important to understand what size mortgage and construction loan you qualify for before you start the home purchase process -- the last thing you want to do is buy a fixer-upper and then not have the ability to finance the remodeling

Buyers should have the construction loan lined-up and ready to go before he or she buys the property so that they can begin remodeling immediately after the purchase closes and there are no issues financing the renovations

FREEandCLEAR
Resources

5

Get a Take-Out Mortgage When the Remodeling is Completed

After your remodeling is completed, the borrower should get a take-out loan to pay-off the construction loan and refinance the original mortgage used to purchase the property

The lender for the take-out mortgage will use a new appraisal that factors in any home improvements to determine the value of the property

The more valuable the property, the larger the mortgage the lender will be willing to offer, assuming the borrower qualifies for the larger mortgage

With a take-out loan in place, the borrower will have paid of the construction loan and have a new mortgage based on the improved value of the property

It is important to highlight the risks to financing a fixer-upper through a construction loan and take-out mortgage

First if the borrower’s financial profile changes significantly during the course of remodeling the property, such a job loss or drop in credit score, he or she may not be able to obtain the take-out mortgage

Second, there is no guarantee that the remodeling will result in the increase in property value expected by the borrower, which could hinder the borrower’s ability to obtain the take-out mortgage. For example the appraisal may show a property value less than the original purchase price of the property plus the cost of the improvements

It is important to work with potential take-out lenders in advance of buying the fixer-upper to limit potential disagreements about the value of the property after the remodeling

In many cases a construction loan lender will not fund the loan until a borrower has arranged a permanent take-out mortgage

FREEandCLEAR
Resources

6

Consider Making a Lower Down Payment

If a borrower is concerned about obtaining a construction loan and take-out mortgage he or she may want to make a lower down payment and pay for the remodeling out of pocket

For example, instead of making a 20% down payment, the borrower makes a 5% down payment and uses the difference in down payments to pay for all or part of the property improvements

This would minimize the need for the borrower to obtain a construction loan and take-out mortgage

It is important to understand that if you make a down payment of less than 20% lenders typically require that you pay private mortgage insurance (PMI), which is an additional monthly cost on top of your mortgage payment, or the lender may charge you a higher interest rate

In this scenario, the borrower could refinance his or her mortgage after the remodeling is done and assuming the value of the property has increased and the borrower’s equity in the property has increased, the borrower may not be required to pay PMI or the lender would offer a lower interest rate

7

Consider a Hard Money Mortgage

If you cannot arrange a mortgage for a fixer upper through a traditional lender you may be able to get a mortgage through a hard money lender, also known as a private lender 

Borrowers can use a short-term hard money mortgage, also known as a bridge loan, to finance the purchase and renovation of a property and then refinance the hard money mortgage with a traditional mortgage with a lower interest rate after the property is remodeled

Hard money mortgages typically charge an interest rate that is 4.0% - 7.0% higher than a traditional mortgage plus much higher lender fees.  Additionally, a hard money mortgage may require a lower loan-to-value ratio which means that the borrower must make a greater down payment or equity contribution

Although a hard money mortgage is much more expensive than a traditional mortgage it is another alternative for a buyer seeking to finance a fixer-upper

Rate Details*
Loan Program:  
Monthly Payment:  
APR:  
Rate:  
Points  More Info:
Points: Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
 
Total Lender Fees:  
Loan type:  
Property Value:  
Loan to Value:  
Credit Rating:  
Date Submitted:  
Monthly Housing Payments
P & I More Info
Principal & Interest: A periodic payment, usually paid monthly, that includes the interest charges for the period plus an amount applied to the reduction of the principal balance.
Mortgage Insurance More Info
Mortgage Insurance: The monthly cost for a policy that protects the lender in case you’re unable to repay the full amount of the loan. It is typically required for loans that have a loan-to-value ratio between 80% to 100%.
(Estimated)
Property Tax More Info
Property Tax: (Also called "Real Estate Tax.") Property taxes are government assessments on real estate property. With mortgage financing, the local, county or state tax assessment on real estate property is considered part of the monthly housing obligation and typically collected and set aside by the lender ...
(Estimated)
Homeowner Insurance More Info
Homeowner Insurance: or also commonly called hazard insurance, is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one’s home, its contents, loss of its use, or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory.lender ...
(Estimated)
Homeowner Association Fee More Info
Homeowner Association fee: (HOA) fees are funds that are collected from homeowners in a condominium complex to obtain the income needed to pay (typically) for master insurance, exterior and interior (as appropriate) maintenance, landscaping, water, sewer, and garbage costs.
(If Any)
Total Monthly Housing Payments
Lender Fees
Points More Info
Points Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
Origination Fee More Info
Origination Charge: A loan origination charge is a fee charged by the lender for evaluating, processing, and closing the loan.
Credit Report Fee More Info
Credit Report Fee: Fee charged to obtain an applicant’s credit history prepared by one or all of the three major credit bureaus. Used by lender to determine the borrower’s creditworthiness.
Tax Service Fee More Info
Tax Service Fee: A fee charged by the lender to cover the cost of retaining a tax service agency. These agencies monitor the property tax payments on the property and report the results to the lender.
Processing Fee More Info
Processing Fee: A processing fee is a charge by the lender for clerical items associated with the loan. Examples of processing include loan set up, organization of loan conditions for underwriting, and preparing required disclosures for the borrower.
Underwriting Fee More Info
Underwriting Fee: A fee charged by the lender to verify information on the loan application, authenticate the property’s value, and perform a risk analysis on the overall loan package.
Wire Transfer Fee More Info
Wire Transfer Fee: In most cases lenders wire funds to escrow companies to fund a loan. Commercial banks that perform this function will charge the lender so the fee is generally passed on to the borrower.
(If Any)
FHA Upfront Premium More Info
FHA Upfront Premium: A fee paid in cash at the close of escrow or more commonly it is financed into the loan. These premiums are pooled together by the FHA and are used to insure the risk of borrower default on FHA loans. FHA upfront premiums are prorated over a five year period, meaning should the homeowner refinance or sell during the first five years of the loan, they are entitled to a partial refund of the FHA upfront premium paid at loan inception.
(If any)
VA funding Fee (If any)
Flood Fee
Other Fees More Info

Other fees could be either additional Administrative Fees that a lender charges or it could be a Flat Fee to cover all lender charges such as: (Origination Fees, Points, Underwriting and Processing Fees, Credit Reports and Tax Service Fees)

The flat fee does not include prepaid items and third party costs such as appraisal fees, recording fees, prepaid interest, property & transfer taxes, homeowners insurance, borrower’s attorney’s fees, private mortgage insurance premiums (if applicable), survey costs, title insurance and related services.

Total Lender Fees
*Actual rates and other information may vary. Sponsored results shown only include participating lenders. The information you enter on this page will only be shared with lenders you choose to contact, either by calling the phone number or requesting a quote.
Compare Mortgage Rates as of July 16, 2018
  • Lender
  • APR
  • Loan Type
  • Rate
  • Payment
  • Fees
  • Contact
Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. The actual payment obligation will be greater if taxes and insurance are included. Click here for more information on rates and product details.
X

Get Free Personalized Mortgage Quotes

First Name:
Last Name:
Phone Number:
Email:

My Mortgage Info

Mortgage Type
Credit Score
Loan Amount
Property Value
City
State
GET FREE Quotes
FREEandCLEAR.comThank you for submitting your information!
FREEandCLEAR.comYour mortgage quote request has been sent to our lending partners and you should receive emails from multiple lenders shortly
FREEandCLEAR.comComparing proposals from multiple lenders is the best way to save money on your mortgage!