FINANCIAL WELLNESS

3 min read

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Sep 2022

Renovate Your Home With These Financing Options

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WHAT YOU'LL LEARN

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FHA renovation loan highlights

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The ins and outs of Conventional renovation loans

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Why a VA renovation loan isn’t available to everyone

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WHAT YOU'LL LEARN

check icon

FHA renovation loan highlights

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The ins and outs of Conventional renovation loans

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Why a VA renovation loan isn’t available to everyone

As time goes on, many homeowners start to imagine how their homes might look if one or two features change. Maybe it’s for aesthetic or practical reasons, or perhaps it’s because they’re thinking of selling their property someday. Updating your home with significant renovations can increase its market value substantially, but there’s just one problem. Where will you get the funds to support them?

At Atlantic Bay, we offer many renovation loans that will supply you with the funds for your next home remodel. You have access to refinance options without the need for a second mortgage or line of credit. For example...

FHA 203(K) Standard

The Federal Housing Administration (FHA) 203(K) Standard loan is a government-backed mortgage that is most frequently used when a house is rebuilt from the ground up. FHA loans are typically fantastic options for borrowers with less-than-perfect credit scores, but remember, their long-term costs will be more than that of a Conventional loan.

The maximum loan-to-value (LTV)The difference between the loan amount and the home’s market value. This helps lenders assess loan risk.loan-to-value (LTV)The difference between the loan amount and the home’s market value. This helps lenders assess loan risk. is 96.5%, and for refinances, it’s 97.75%. Repairs must cost at least $5,000, but there is no maximum. However, the loan amount cannot exceed FHA loan limits.

To qualify for this loan at Atlantic Bay, you must have a credit score of at least 640. As for the mortgage insurance (MI)Insurance that protects your lender if you can’t make mortgage payments.mortgage insurance (MI)Insurance that protects your lender if you can’t make mortgage payments., you’ll need to meet the standard FHA premiums, and this loan type is offered to primary residences only. The FHA 203(K) Standard covers complex repairs and renovations, so long as architectural exhibits are provided.

FHA 203(K) Limited

FHA also offers a 203(K) Limited loan for borrowers. The limited option has the same maximum LTVs for purchases and refinances as its standard counterpart, but there is a maximum repair cost of $35,000, hence the name “limited.” The loan was created for minor cosmetic repairs, so the borrower only recieves 50% of the funds at closing. The remaining funds are awarded once the rehab is complete. The 640-minimum credit score, MI premiums, and primary-residence requirement are the same as the FHA 203(K) Standard.

Conventional Standard

Borrowers with a strong financial profile should consider the Conventional Standard loan option. The maximum LTV is 97% for primary homes, 80% for secondary homes, and 85% for investment properties. Per Fannie Mae, or the Federal National Mortgage Association, the maximum purchase amount is 75% of the “as complete” appraised property value (refinance max) or the sum of the purchase price and renovation costs, depending on which option is the lesser value.

At Atlantic Bay, the Conventional Standard loan requires a 680-credit score for primary residences, 700 for those self-employed, and 720 for investment homes. This loan type features credit and LTV-based MI premiums, and complex repairs and renovations are allowed. Like the FHA 203(K) Standard, architectural exhibits are required.

Conventional Limited

There is a limited version of the Conventional Standard loan as well. The maximum LTV, credit score requirements, and MI premiums are the same, but repair costs must fall between $5,000 and $35,000. Conventional Limited is for minor cosmetic repairs, and just like the FHA 203(K) Limited, borrowers receive 50% of funds at closing and the remaining funds after the rehab.

VA Renovation

The VA Renovation loan is available to active and retired military personnel, reservists, and surviving spouses who already have a VA loan. There is a 100% maximum LTV, repairs must cost between $5,000 and $50,000, and the property must be the primary residence. To qualify, refinancing borrowers must have a credit score of at least 660. With no monthly MI, this loan type can fund alterations, minor repairs, and improvements to your home.

So, How Do I Get Started?

Planning a home renovation is exciting, but you’ll need to plan first. That way, you’ll make the best-informed decision for your family’s future! Check out other articles around the Knowledge Center to learn more about your options when it comes to renovating.