Chip and Joanna Gaines are inspiring homebuyers across the nation with more than airy farmhouse-style interiors and white couches.
Their popular HGTV show “Fixer Upper” has left a frenzy of buyers looking to create their own renovated masterpieces.
But, unlike the quirky couple from the show, many potential buyers don’t have the extra cash sitting around to pay for the renovations in a fixer-upper.
That’s where renovation home loans come in handy, whether it’s for simple upgrades or to restore an entire house.
“There’s no need to take out a second loan for renovations, it’s all tied in with the mortgage,” said Charles Garrison with Wells Fargo Home Mortgage.
According to Forbes.com, the Federal Housing Administration’s rehab loan — the FHA 203(k) — is for people who want to repair a damaged home and make it their primary residence.
Many of the homes would have been previously deemed uninhabitable by lenders.
The loan covers the purchase and renovation costs for single-family homes and multifamily housing with up to four units.
The loan amount is based on the property’s appraised value once the repairs are completed. The down payment can be as low as 3.5 percent.
“When people are buying the houses correctly, they’re actually generating instant equity,” Garrison said at a recent Northeast Florida Builders Association Lunch and Learn session. “It’s a matter of getting the right house at the right deal.”
FHA offers two types of 203(k) mortgages.
The standard loan is for properties that need structural repairs; the limited mortgage is for homes only in need of non-structural repairs. The loans are not available to investors.
The downside to the loans is they are more expensive than conventional financing, because the interest rates are slightly higher and private mortgage insurance is required.
They also do not cover adding luxury items, such as a pool, according to cnbc.com. But they can be used to repair or remove one.
Noticing the frustration some buyers have experienced using the 203(k) loans, many larger banks have set up their own renovation home loans.
For example, Wells Fargo has two types: one for refinancing and one for purchasing.
With fewer restrictions, many buyers are turning to the banks for help renovating houses into their dream homes.
“Outdoor space is a big selling point right now,” said Realtor Melissa Westmoreland. “If buyers knew they could design their dream outdoor living area and bundle the cost into their mortgage, I don’t think it would be such a concern if they found the right house.”
Home renovating may not be for everyone but for those wishing to take the plunge, these loans are making it easier to purchase the perfect house and give it the TLC it needs.
Or for some buyers, to change that perfectly located mid-century modern into a Joanna Gaines-inspired farmhouse of their dreams.