Can You Take out Extra Money for Home Improvements When Buying a Home via a Mortgage? Part 1

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If you’ve spent several months looking for a new house where you and your family can transfer to, I’m guessing that you found a couple of prospective houses whom you thought can be the right place. All your potential home needs is a little repair here and there, a few adjustments to the porch, and maybe a little patching up on the roof — then the house is pretty much good to go.

 

These kinds of houses are what people in the real estate industry call a “fixer-upper.” These are properties that need redecoration, reconstruction or repair.

 

The problem is, these repairs usually add up to a hefty sum. And in most cases, some of us don’t have enough money after paying the downpayment to spend for these repairs.

 

And so the question becomes: What options do you have if you don’t have enough money for home improvements?

 

I’m glad you asked.

 

Allow me to share with you a few options that you can take to finding the money that you need for your home improvements.

Let’s hop right in.

FHA 203K Rehab Loan

If you only have enough money for the down payment, then you can consider having the FHA (Federal Housing Agency) 203K loan.

 

Though not the most popular option, the 203K Rehab Loan is a specialized renovation and construction loan that helps you finance both the value of the home and an additional amount that’s meant for repairs.

 

Before you think about going for the 203K loan, however, you need to have a better understanding of how it works first, and the full set of advantages and disadvantages that come with it. Hiring a (203K) consultant is certainly an idea worth considering if you want to determine how financially feasible your project is.

 

There are two kinds of 203K loans: the Streamlined version, and the Standard version. Both are separated based on the kind of repairs that you intend to do.

The Streamlined 203K loan

The Streamlined 203K loan is mostly for minor repairs to make your home just a little more comfortable and presentable.

 

These are some of the repairs you can do with the Streamlined 203K loan:

 

  • Lead paint and mold removal
  • Carpet and appliances
  • Minor non-structural repairs
  • Roof repair/replacement
  • Moving non-load-bearing walls

 

There are plenty of other repairs that you can do with the streamlined 203k loan; however, almost all of them are considered minor repairs.

 

If the total cost of the repairs totals below $35,000, it should be considered under the streamlined 203k loan.

 

The streamlined 203k loan also doesn’t require much paperwork and can be easier to manage compared to the standard loan.

The Standard 203K loan

 

The Standard 203K loan, on the other hand, is for bigger structural repairs, or repairs that exceed $35,000.

 

Some of the repairs needing a Standard 203K loan are as follows:

 

  • Additional rooms
  • Moving on load-bearing walls
  • Landscaping
  • Structural damage repair
  • Plumbing replacements

 

If you need to tear a portion of the house apart, the chances are good that you’ll be needing the 203K loan.

 

Up to this day, one of the most forgiving loans offered is the 203K loan. It can finance up to $625,000 in repairs depending on the area. The loan, however, does not cover luxury repairs for the home, meaning no swimming pools, bathtubs, or other luxury items.

The advantages

The main advantage of a 203K loan is that you’re letting someone else pay the lump sum of the home repairs, while you get to hold onto your savings and slowly pay for the total amount in a manner that won’t cause you too much financial strain.

Disadvantages

The main disadvantage, on the other hand, is that it’s a lot harder to get a 203K loan compared to a conventional loan, especially if you plan to get the standard version.

 

203K loans typically take more than a month to get approved, sometimes longer. Standard 203K loans also require you to have a contractor submit a bid to the bank for the repairs you want to do to the house.

 

Furthermore, you can’t change your contractor after you submit the bid otherwise the loan might not push through.  

Maximizing your loan

To get the most out of your loan, try to invest in repairs and additions that raise the overall value of the home.

 

Unlike what some contractors would want you to believe, not every addition to your home holds the same amount of value when the time comes for you to sell it. Some renovations add more value to the home than the actual cost, while some hold less, while others don’t retain any value at all.

 

For example, making kitchen repairs or improvements is almost always a great idea since it can get you anywhere from 60% to 120% of your investment, according to HGTV. A great-looking kitchen with a fresh coat of paint will go a long way in the real estate market. It’s also a good idea to invest in energy-efficient appliances that help you save money and keep your kitchen future proof at the same time.

 

Bathrooms are also a good addition to any household. HGTV estimates that you can get anywhere from 80%-130% of your construction costs upon sale date. Make use of any underutilized space or unused closets especially those near the living room area if it doesn’t have a bathroom yet.

 

Don’t be afraid to change up a room. An extra bedroom can go a long way in increasing the value of a home. Whether there’s a basement or an attic that you can convert to an extra bedroom or build an extra room on top of the garage, a room is always a worthwhile investment. And if it’s convenient (like in the case of the garage), you can always rent it out to earn from it.

 

Lastly, any improvements that increase the power efficiency of the home is always a welcome improvement that future buyers are willing to pay for. Look at the insulation of the house to start your quest for power efficiency.

 

Most old houses have leaks in the walls and doors that let plenty of hot or cold air in and out. The attic and basement are also common culprits when looking for these leaks. Fixing these leaks and improving household insulation not only increases the value of the home, but it will also save you tons of money in electricity costs.

 

Whatever improvements you have in mind, be sure to find the best contractors and agents for the job. The right people can tell you how to do the job right and can spell the difference between a great buying experience or a mountain of headaches.

What’s next?

Securing the money for your home improvements through your mortgage can be quite time-consuming — let alone confusing — especially if you are oblivious about the ins and outs of the endeavor.

 

If you are looking for a real estate agent whom you can trust, and one that can help you find your ideal home or take out money for your home improvements via a mortgage, then allow me to help you with just that.
Contact me now using this contact form, and I’ll be more than happy to spend some time with you to learn your needs and wants so I can find the ideal home for you.

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