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    How to Finance a Fixer-Upper

    If you're like many families who plan for a home renovation project, finding a way to pay for the remodel is the toughest part. There's nothing like a blow to morale after you've been caught up in the visions of entertaining in that brand new spacious kitchen, or having extra space for your home office just to realize you forget to consider the costs. Many families look to home renovation loans to fund their dream projects. You're not alone, a Homeadvisor survey found that 19% of homeowners used financing to pay for a home improvement project. 

    Now, besides home renovation loans, there are other ways to pay for a remodeling project. If you've planned ahead, cash is always king. Dipping into savings may be worth it, if the project will add value to your home in the long run.    

    Some may look to credit cards to help finance the cost. While this may seem like the easiest solution, interest rates can quickly add up. Credit cards have variable interest rates, meaning the financial institution could easily increase your rate, quickly putting your repayment plans in a bind as they increase each month. Many credit cards have reward point systems. Purchasing supplies or charging a portion of the project on your credit card could help you earn some serious points. 

    If you have some retirement saving built up, most 401(k) programs allow you to borrow from the account and pay back over five years. There are some cautions here, as with any option, but generally, borrowing against your retirement program is frowned upon. The biggest issue with this alternative is that if you leave your job, the repayment plan is revoked and the balance is due immediately. 

    Home renovation loans are another viable option for families. There are several options including:

    • FNMA Homestyle® Renovation

    • FHA 203(k) Standard

    • FHA 203(k) Limited

    Let's break down each. 

    FNMA Homestyle Renovation Loan

    Through the Homestyle Renovation loan option, you can either purchase a new home or refinance your current home and make your home improvements with a single loan closing. There is no minimum amount required for the home renovation project. The only requirement is that the renovation must be permanently attached to your home and adds value to the property. Essentially, this style of renovation loans give you the opportunity to roll your renovation costs into the price of home. This is a good option for buyers who've found the ideal home location but a less than perfect home, and renovation will be needed to make it your own.  

    FHA 203(k) Standard Loan

    The minimum renovation costs to be eligible for a 203(k) Standard is $5,000, however, this option is optimal for major structural improvements and additions. The max loan is based on your loan limit for your area and the purchase price of the property. Benefits of the loan program include the ability to roll in most closing costs, available for both purchase and refinance loans, and a low down payment.   

    FHA 203(k) Limited Loan

    This program permits buyers to finance up to $35,000 into their mortgage for home renovation projects. The FHA 203(k) Limited is ideal for less extensive repairs and improvements. Eligible projects include minor kitchen remodeling which does not involve structural repairs, interior and exterior painting, window and door replacements, basement finishing, and more.   

    Assessing your own situation and doing what's best within your own financial capacity is always best practice.

    download home renovation ebook

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    Home Maintenance & Renovation

    Dave Kuebler

    Dave Kuebler joined SWBC Mortgage in 2009 after years as a Texas mortgage banker. At SWBC Mortgage, Dave has served as branch manager, assistant regional manager, regional manager, and now, regional vice president. He has held numerous positions with realtors’ and builders’ associations in Temple and Killeen, Texas.

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