With an over-saturation of foreclosures on the market, the country is turning to home renovation loans as the primary means of buying and fixing up these under-valued properties. In fact, these home rehab loans have been a great tool for first time homebuyers to begin building their nest egg. However, for many people new to real estate, the key is minimizing the down payment requirement.
Home renovation loans are a great solution for first time homebuyers, because they provide an opportunity to buy a home at a bargain price and wrap the repairs and renovations into the financing. However, for most first time homebuyers, the hardest part of the financing is coming up with the down payment.
Fortunately, home renovation and rehab loans have a few options that will limit, or even eliminate the requirement for a down payment. Whether you own your current home and want to fix it up with a home improvement project, or you are looking to buy and renovate a property, you should be aware of the following tricks of the trade available for home renovation loans to minimize your out-of-pocket costs.
First, let's start with the scenario of an individual who owns his home and wants to fix it up. Instead of paying cash out of your pocket or putting the repair costs on a credit card, you could turn to a home renovation loan to refinance your property into a low, fixed interest rate that includes the costs of the improvements. The best option for this renovation, when it comes to limiting any potential down payment requirement, is the FHA 203(k) program.
This specific program is a government insured loan that a few lenders have the right to make around the country. Not all lenders are qualified to provide FHA loans, and even fewer are approved for the specific FHA 203(k) program, which is the loan designed for home renovations.
As far as down payments are concerned, the FHA 203(k) program is a great home renovation loan, because the borrower will only need to come up with 3.5% at closing. Looking at our first scenario of a person who owns his home, he can use the equity he may have in his property to cover that small down payment requirement. In other words, if he already has a small amount of equity in his property, he may not have to bring any cash to the table for a down payment. Indeed, if there is enough equity in the home, all of the loan's closing costs can be financed, costing the borrower no money out of pocket.
But, what if you want to buy and fix up a new home through a home renovation loan? What can the FHA 203(k) program do for you then? Well, in this case, the good news is that the down payment requirement is still only 3.5%. And, even better, there are ways to get assistance to reach that requirement if needed.
In today's mortgage industry, most lenders want to see larger down payments for construction projects or home renovation loans. It's not uncommon to have to make down payments as large as 20% or 30% of the project costs. However, if you work with a lender who specializes in home rehab loans and the FHA 203(k) program specifically, then you can limit your down payment to 3.5% or less.
But, what if you don't have the cash to cover the 3.5% requirement? Will you have to walk away from that perfect property and opportunity to build your nest egg? Fortunately, the FHA 203(k) home renovation loan will allow you to get assistance from a family member for that 3.5% down payment. This is a great option for many first time homebuyers. Often, parents or guardians will assist the new homebuyers with some cash toward the purchase of the home. With this particular home renovation loan, the entire down payment can be covered by a gift from the family members.
In short, the homebuyer won't have to pay any of the down payment out of their own pocket. This is a perfect option for a first time homebuyer who is short on savings. However, it does not specifically address the issue of closing costs.
Let's look at a third scenario to cover the best means of eliminating closing cost payments in today's market. It is no secret that home prices have dropped over the last couple of years. It is truly a buyer's market, and sellers are more willing than ever to accommodate a buyer's demands to get a deal done. With a flexible home renovation loan, the program will allow for the seller to pay the closing costs on behalf of the borrower.
For example, the FHA 203(k) program will allow the seller to pay as much as 6% of the purchase price of the home toward closing costs. This will be more than enough money to cover all of the closing costs for the borrower. As a borrower, therefore, you need to use this to your advantage when negotiating the sales price of the home. You may not get a full 6% out of the borrower, but it is very common nowadays for the seller to cover at least 3% for the borrower's closing costs.
In this way, the borrower can get assistance toward both the down payment and the closing costs for a home renovation loan. However, there is a fourth scenario that may be the best option of all. How about eliminating the down payment requirement almost completely?
If you work with a savvy lender who specializes in home renovation loans, then you should have access to a specific program that will reduce that 3.5% down payment all the way down to a mere $100.00. Imagine getting a home rehab loan with tiny $100 investment! You can still have the seller pay the closing costs, and now you don't have to worry about the down payment requirement either.
It should be noted that this specialty program will have restrictions on the types of properties that can be financed with a $100 down payment. However, if you are strapped for cash, then this may be a great option for you. The best thing to do is to discuss your options with a qualified lender.
The good news is that there are options for you when considering a home renovation loan. You don't have to let minimal savings prevent you from taking advantage of the buyer's market and finding the perfect property to buy and renovate. Home renovation loans today are finding ways to make it easy to minimize your down payment.
Author Resource:-
Chris Esposito works at CM Direct, Inc., specializing in home renovation loans nationwide. For more information about the FHA 203(k) program or home rehab loans in general, go to www.DirectRehabLoans.com or call (877) 876-3688.
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