In Utah, fixer-uppers spent less time on the market. These properties tend to get sold fast since they are hot in the eyes of investors who buy “as is” condition, pay cash, and close quickly with intent to flip and resell.
However, fixer-uppers are likewise attractive to buyers who want to take their shot at homeownership. Compared to ordinary properties, though, fixer-uppers are more challenging to finance.
What Are Home Renovation Loans?
Fortunately, home renovation loans exist. They provide the money to buy a fixer-upper and fund necessary improvements like basement finishing in Salt Lake City. They are mortgages, and personal loans rolled into one. They tend to come with interest slightly higher than typical mortgage rates.
Home renovation loans are beneficial for obvious reasons. They render the need to take out a second mortgage unnecessary, for they are already large enough to cover the price of a fixer-upper and the cost of home repairs. Apart from providing convenience, they help eliminate multiple hard inquiries since one credit application might be enough.
Despite their slightly higher rates, home renovation loans promise more savings over the long term. The rationale behind it is that the interest will just be charged to one secured loan. In contrary, personal loans are synonymous with high rates due to the lack of collateral involved.
Why Are They Not as Common as Regular Mortgages?
Generally, mortgages do not involve a “home improvement” component because they are catered to properties that are not as in bad condition as fixer-uppers. Also, most lenders are unwilling to loan more than what the house is worth. If you want to buy a fixer-upper costing $200,000, a typical lender of today will not even let you borrow more than $197,000.
It takes a special kind of lender to feel confident financing a fixer-upper and the home improvement it requires to be brought up to code. This is why home renovation loans are linked to Uncle Sam one way or another.
What Programs Are Available?
The FHA 203k loan is perhaps the most popular home renovation on the market. This financial product is designed for rehabilitation, which can be only be used for properties that have been occupied for at least one year. It can be used to buy multi-unit owner-occupied pieces of real estate, such as condominiums and townhomes.
The Fannie Mae Homestyle Renovation is another popular product. Other than the improvements an appraiser points out, it can also be used for the changes, structural, aesthetic, or both, you want to make. While it includes the cost of the repairs, its loan amount is based on the projected value of the property in question after the renovation is completed.
The Freddie Mac CHOICERenovation Mortgage is another excellent option when buying a fixer-upper. In addition to first-time homebuyers, it is also available to homeowners seeking to refinance and fund a home improvement at the same time.
These programs are different, but they share one similar thing: tons of paperwork. Considering the great risk that a fixer-upper presents to the deal, the lender has to approve everything.
Buying a house, even a fixer-upper, is not easy by design to help avoid another economic crisis like the Great Recession. Thanks to home renovation loans, the least attractive properties in Utah are much more affordable and can be made habitable more easily.