Financing Repairs for a Philadelphia Fixer-Upper

Financing Repairs for a Philadelphia Fixer-Upper

As interest rates remain high and home values increase, more Philadelphia home buyers are looking for ways to save money on their home purchases. This has led some buyers to consider purchasing a home that needs some work, a fixer.

Even after purchasing the home, money needs to be put into the home to fix it up. The good news is there are some mortgages that provide options for home renovation costs to be rolled into the mortgage so that homebuyers have some funds to make improvements to a home.

Mortgage Options for Philadelphia Fixer-Upper Homes

FHA 203(k) Mortgage

An FHA 203(k) loan covers the offered purchase price of the home and renovations. A borrower is able to take out a loan for up to 110% of the property’s projected market value after repairs are made. OR the as-is value of the home plus projected rehab costs. The approved amount for the loan is whichever works out to be less and is within the current FHA loan limits.

There are two types of FHA 203(k) loans, standard and limited:

Standard FHA 203(k): this is a loan for a home that needs major repairs and rehabilitation. This is meant for large jobs such as plumbing work that impact the safety and livability of the home.

Limited FHA 203(k): this loan is for a property that needs a few minor spruce-ups like a new kitchen or new flooring. It will not cover a major structural issue.

VA Rehab Mortgage

This loan program is only available to active and retired military service members and their direct family members. This loan is a great program that allows qualified borrowers to purchase a home that needs help with a 0% down payment, but there is a VA funding fee. The loan is only usable for repairs that impact livability (not cosmetic issues) but will not cover major structural overhauls like a teardown or a rebuild.

Conventional Fixer Mortgages

The other two loan programs are government loan programs. Conventional programs are standard loans through traditional lending companies such as banks that meet the standards set by Fannie Mae and Freddie Mac. These loans are great for borrowers who do not want to be limited in the improvements they can make to a home. These loans do not put limitations on how a borrower can use money for home renovations. There is also no need for a lender to approve your contractor choice the only requirement is that they are licensed and can prove that.

Freddie Mac Choice Renovation Mortgage: This mortgage loan gives buyers the option to borrow the purchase price of the home and money to make improvements up to 75% of the home value after repairs are made. If a buyer has a smaller rehab budget they can opt for the Choice Reno Express loan which gives the homebuyer the ability to purchase up to 15% of the home value to renovate the home.

Fannie Mae HomeStyle Renovation Loan: this conventional mortgage loan can be used on a home purchase or a refinance. It works very similar to the Freddie Mac loan. A borrower can borrow up to 75% of the sum of the purchase price plus projected rehab costs or 75% of the value of the property once repairs are made, whichever amount is the lesser number.

If you are considering purchasing a home and are worried about affording a home you will actually like this can be a great consideration. It does require a home buyer to be willing to be patient with the condition of the home, but it could mean choosing some improvements you really love and making the home your own from the start.

If you are searching for a home in Philadelphia, I am here to help. Contact me any time with any greater Philadelphia real estate needs, both buying and selling homes.