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How To Buy & Finance A House That Needs Repairs

by | Aug 26, 2019

It’s not uncommon for people to buy houses that need repairs far below the regular market value. Many people base their home purchases and investments off of buying these inexpensive houses. Unfortunately, when you buy a home that requires repairs to achieve livability, some lenders will not lend you money. Necessary repairs can cause a deal to fall apart. The good thing is, there are a few ways to finance a property that needs repairs. 

Fannie Mae’s Homestyle Loan

This loan allows borrowers to buy a home that needs repairs, as well as refinance the home that they currently live in so that they can pay for improvements. There are a few qualifications for this loan. 

  • If it is a primary residence, you have to have a credit score that is at least 620. Check your credit score here to see if you qualify.
  • You have to make a 5% down payment in the least when you buy the home
  • You must have a certified contractor submit an estimate for the cost, as well as details of the repairs

FHA 203(k) Loan

The FHA has 203(k) loans that they offer with a fairly low credit score requirement. The minimum down payment is 3.5% too, making it a bit easier for lower-income families to utilize. You can pick from either a limited loan or a standard loan.

Limited loans have a $35,000 cap that is perfect for things such as paint jobs or kitchen remodeling. Standard loans are better for extensive repairs and remodeling, though you must hire a 203(k) consultant to oversee the work. 

You can get an FHA 203(k) loan if your home is over a year old and the cost of your repairs must be at least $5,000. The mortgage limit varies by state and county. 

Home Equity Loan/HELOC

Home equity loans are also known as second mortgages. These one-time loans fluctuate in terms of interest rate, though the monthly payments will stay the same over the period of the loan. HELOC is a home equity line of credit that is best for someone who has a bigger home improvement or more expensive home repairs. 

To make use of these loans, you must pledge your house as “collateral”. This means that if you don’t end up being able to make payments on time, the lender will take over your home.

Conclusion

Choosing the best loan for your home renovations and repairs comes down to what kind of credit you have and what your eligibility is. For example, an FHA 203(k) is great for someone with okay credit and a smaller down payment ability.

One major piece of advice would be to work with a lender that knows the details of the specific loan program inside and out.

Have you ever had to buy and finance a fixer-upper? What was your experience like? Make sure to let us know in the comments! 

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