A renovation mortgage is simply a home renovation loan that allows homeowners to finance their next home renovation project. These types of loans are a great option for homeowners who are strapped for cash but still want to boost the value of their homes through renovations. Now, there are different kinds of renovation loans available to homeowners, and each of these loans has its advantages and disadvantages you should be aware of.
3 Loans you can Get for a Home Renovation Project in Texas
Before taking out a loan for your renovation project, it’s essential to familiarize yourself with the most common renovation mortgages available to homeowners in Texas.
Fannie Mae Homestyle Renovation Mortgage
First on our list of home renovation projects is the Fannie Mae HomeStyle home renovation loan. This is an excellent option for anyone who does not want to go through the hassle of taking out a second loan. The Fannie Mae Homestyle renovation scheme is flexible. It allows homeowners to fund most of their renovation projects, making it an excellent choice for any interested in bathroom or kitchen remodeling. There is indeed an eligibility criterion that often looks at your income-to-debt ratio and credit score. And funds are usually paid out and into an escrow directly to the contractor.
FHA 203(k)
A great alternative to the Fannie Mae Homestyle loan is the FHA 203(k). The Federal Housing Administration sponsors these types of renovation loans and is often in favor of the borrower. The eligibility criteria for FHA 203(k) loans are fairly lenient, especially when compared to the Fannie Mae. An approved appraiser must first appraise the home, and these homes must be more than a year old. These loans do require a downpayment of 3.5%, and depending on the homeowner’s credit score, interest rates can vary.
Home Equity Lines of Credit (HELOCs)
The home equity line of credit is perfect for homeowners who want to fund small-scale renovation projects. This type of renovation loan can be thought of as a second mortgage where any money borrowed is against your home’s equity. A home equity line of credit allows homeowners to borrow a certain amount of money against their line of credit over a period of time. Now, it’s important to mention that a home equity line of credit is different from that of a home equity loan. With a line of credit, homeowners can generally borrow money for a longer period. For example, if you need to fund a large home renovation project which may include ongoing costs. In contrast, a home equity loan will provide homeowners a lump sum of money once to pay for a renovation project. These are often the preferred choice for renovations with a fixed cost.
Are Renovation Mortgages Worth It?
The correct type of home renovations will not only boost the value of your home but also intrigue potential buyers. That being said, home renovation and remodeling projects in Dallas, Texas, don’t come cheap. Even minor projects such as a mid-range kitchen remodel, or bathroom model can quickly exceed your budget. So, if you’re not in a position to pay for a home renovation project, then a renovation loan or mortgage will have its perks. With that being said, it’s crucial to remember there will be ongoing monthly costs once you obtain a loan for your renovations.
