According to some lenders if you owe most of your mortgage (specifically what is meant by most is not exact) you would probably be better off getting different types of financing other than conventional loan products, which leaves FHA.
A FHA 203k Mortgage refinance covers the purchase or refinancing and rehabilitation of a home that is at least one year old. A portion of the proceeds is used to pay the seller, or, if a refinance, to pay off the existing mortgage, and the remaining funds are placed in an escrow account and released as rehabilitation is completed. The cost of the rehabilitation must be at least $5000 but the total value of the property must still fall within the FHA mortgage limit for the area. The value of the property is determined by either:
Whichever is less:
The range of rehabilitation covered by a FHA 203k loan range from relatively minor (must exceed $5000) to major reconstruction is eligible. However a home that has been demolished or will be razed as part of rehabilitation require the existing foundation system remains in place A FHA 203k loan can also finance the rehabilitation property that also has non-residential uses, they can cover the conversion of a property to a one- to four- unit structure. Some of the types of FHA 203k financing include:
If you still owe most of your mortgage, even if your home is worth more than you paid for it, you’re probably not going to want to tap into your home equity to help finance a new or second mortgage. If you’ve paid your mortgage down by a fair amount and your house appraises for a good value. The goal of a remodel should also include increasing the value of the property. Should you use all or most of the equity you have earned for the renovation costs and the value of the property remains the same or slightly more than it was prior to the renovation it seems you have spent money unnecessarily and will have to live it out and wait for appreciation over time. I have seen people dump $10,000 into a bathroom and increased the value only $2500-$4,000. When I lived in Arizona and Texas I witnessed people building $25000-$45000 pools to only increase the value of the property $5,000-$10,000. When remodeling a home the area must be considered, if homes in the immediate area are appraising for say 30% more than the house you living in, perhaps a nicely done renovation would be worth the dollars spent.
There are some conventional loan products known as no cost refinance loan. A no cost refinance loan allows you to refinance your current mortgage at a better rate without having to pay fees to do so. In a nutshell it would be taking out a new loan at a small rate to pay off your old loan at the higher interest rate. Some homeowners and lenders will use this route to cover the costs of repairs, the lender will add on the amount of the renovation to the value of the home so that the old loan is paid off they have a cushion to help pay for repairs and projects. However, it has been my experience these loans come with a lot of fine print and the borrower will need a high FICO credit score to qualify. I’ve found these conventional type loan products difficult to obtain and (my opinion) seems there is always something in the fine print. To be fair all conventional conforming loans must follow Fannie Mae or Freddie Mac guidelines. Since the meltdown of the mortgage industry in 2008 the industry has been through a renovation of its own and is highly regulated. All of these regulations and guidelines are designed to protect the consumer not the lender.
I can be reached 7 days a week, holidays and weekends at the Larry Stepp Team at Gustan Cho Associates. I look forward to offering information and assistance.
Larry Stepp 407-922-4755 LarryS.HomesNetwork@gmail.com