January 18, 2022
mortgage blog, home renovation, 2022, preferred rate

Financing a home renovation in 2022 can give you the extra cash you need to update your home, build equity, and finally get that backyard kitchen you’ve been dreaming about.

If you’re like a lot of homeowners, 2022 is looking a lot like 2021 at the moment. This means remote work, kids home from school and using your home as the main hub for everything you do in life.

Financing your home renovation doesn’t have to break the bank either. You can do a cash-out refinance, apply for a new renovation loan, access your equity through a home equity line of credit and more.

Whether you want to build out your current home or buy a fixer-upper, these mortgage options will help you finance the whole renovation top to bottom.

RELATED: Top 7 Ways to Increase the Value of Your Home in 2022

How to Use Your Home Equity for a Home Renovation

Home equity is the financial difference between your mortgage balance and the appraised value of your home. For example, if your current mortgage balance is $475k and the current market value of your home is $720k, then you’ve got $245k in home equity.

The most popular ways to access your home equity for a home renovation are:

  • Cash-out Refinance
  • Home Equity Loan
  • Home Equity Line of Credit

When you want to access the equity in your home, most lenders will only approve up to 80% of your home’s value. This allows for market fluctuations in property value and lowers risk in the eyes of the lender. In the example above, the 80% Loan-to-Value ratio means you could borrow up to $576k, giving you potential access to $100k.

Cash-Out Refinancing for a Home Renovation

Refinancing your mortgage with a cash-out refinance gives you the most flexibility. You can choose whether to refinance with a fixed-rate, adjustable-rate, 15-year, 30-year, or custom options. 

Once your new mortgage closes, you’ll receive your cash (equity) in a lump sum, and you can spend it however you want. There are no limitations, no requirements, and no accountability. You can also take your time using the funds or even use the funds on things outside your home renovation.

RELATED: Refinance your mortgage and pay off your debt in 2022

Home Equity Loan

Home equity loans are almost always fixed-rate loans with set terms, fixed monthly payments, and a fixed payment schedule. You get the full amount in one lump sum once you’re approved. Then you pay off the loan in fixed payments over the life of the loan.

Highlights:

  • A low-interest rate that is locked in for the life of the loan
  • Fixed monthly payments which make it easy to budget and plan
  • Lump-sum disbursement so you can start a big project right away
  • No limitation on the use of funds
  • The interest on your home equity loan may be tax-deductible

Worth noting: higher credit scores mean lower rates. Check for prepayment penalties in case you decide to pay it off sooner than scheduled or if you might want to refinance later.

Home Equity Line of Credit (HELOC)

Home equity line of credit operates like a revolving credit account. Instead of having a set payment schedule and a fixed rate, HELOCs give you access to a line of credit with a maximum limit.

You can use the funds at any time, and you won’t accrue any interest until you draw from the account. HELOC’s have a set draw period (typically 10 years) and a variable APR based on the prime rate and market trends.

Highlights:

  • Access as much or as little money as you want to meet the needs of your projects
  • Interest doesn’t accrue until you access the funds
  • Repayment terms are flexible (pay it off or make minimum monthly payments)
  • Use the funds for whatever you want
  • The interest on your HELOC may be tax-deductible

RELATED: How to find the best mortgage lender in your area

Fannie Mae HomeStyle Renovation Home Loan

The Fannie Mae HomeStyle Renovation Home Loan is a great opportunity for current homeowners who want to do some big updates, as well as homebuyers looking for a fixer-upper. 

The HomeStyle renovation loan has a lot more flexibility than the FHA 203(k). For example, you could put in permanent landscaping features such as a pool or an outdoor kitchen, build an accessory dwelling unit (ADU), or upgrade your windows. Consider full kitchen and bathroom upgrades for the interior or build an extensive remodel.

The HomeStyle renovation loan estimates the cost of repairs and renovation ahead of time, so you have one mortgage that includes the entire amount (renovation costs + purchase price). Once your approved mortgage closes, you’ll be able to start improvements right away and enjoy the financial security that comes with one mortgage payment.

The Fannie Mae Home Renovation loan is extremely flexible with a full suite of advantages which we blogged about here.

The FHA 203(k) Home Loan

With the FHA 203k loan, you can buy a home that needs a fair amount of work and make the repairs affordable with one mortgage and a single monthly payment . The 203k combines the price of the home with all renovation costs and finances everything with one mortgage at a fixed rate.

Since the home loan covers the purchase price plus all the renovations, you’re able to spread the cost of repairs over the life of the loan with one affordable mortgage payment. 

There are a few restrictions with the FHA 203(k) loan along with great benefits, which we blogged about here. 

VA Renovation Home Loan

The VA home renovation loan is a unique program offered to active members of the military, veterans, and their spouses. The VA renovation loan is government-backed (guaranteed by the government). For this reason, mortgage lenders can offer low mortgage rates and great terms. 

Like other home renovation loans, the VA renovation home loan puts the costs of repairs, upgrades, labor costs, and materials into one loan. This means one mortgage payment and financial stability while the repairs are completed. 

One caveat: borrowers need to use a VA-approved contractor for the work in order for the loan to get approved.

Take Action

If you’re ready to start your home renovation in 2022, connect with a mortgage advisor to discuss your goals. There are several custom loan options in addition to home equity loans and cash-out refinancing. Whether you are a homeowner with equity or looking to buy a fixer-upper, starting a home renovation in 2022 is a smart move. Connect with a local mortgage advisor to discuss your loan options and get busy. We’d love to help.

November 9, 2021
mortgage blog, buy a duplex, preferred rate

Deciding to buy a duplex or multi-family property can put you on a path toward financial freedom. Whether you’re a first-time homebuyer or you already own property, buying a multi-family property can generate passive income, extra cash flow, and build home equity. You can buy a duplex with FHA financing or conventional financing. Each option comes with a different set of requirements and benefits.

In short, a duplex is a residential property with two units. A multi-family property is a residential property with up to four units. To get approved with FHA financing, you’ll need to be the owner-occupant in one of the units. This holds true for duplexes, triplexes, and multi-family properties up to four units.

Note: If you’re looking to buy a multi-family property with five units or more, it’s considered commercial property. Getting financing for commercial property is a different process with a number of requirements.

Connect with a mortgage advisor if you’re ready to take action and discuss the advantages.

Top 3 Mortgage Options to Buy a Duplex or Multi-Family Property

FHA Loans

FHA loans are government-backed home loans. To get approved when you buy a duplex, you’ll need to live in one of the units. By living in one of the units, the property is considered your primary residence, and you can also use rental income to help you qualify. FHA financing is often the best choice for first-time homebuyers and buyers who want a small down payment. FHA loans have fewer requirements, lower closing costs and down payments as small as 3.5%.

Conventional Home Loans

Conventional loans are the best option if you have excellent credit and plan to make a large down payment. Getting approved for a conventional mortgage offers more flexibility since they’re offered through private lenders (mortgage lenders, credit unions, and banks). You can buy a duplex or multi-unit property with a conventional mortgage. In general, a conventional mortgage may be the best option if you have strong credit and plan to make a large down payment.

VA Loans

If you qualify, VA loans offer several advantages — no minimum credit score, no down payment requirement, and no private mortgage insurance (PMI). To be eligible for a VA loan with 100% financing when you buy a duplex, you must be one of the following:

  • An active-duty service member
  • Military veteran
  • Surviving spouse of qualifying service members
  • Eligible members of the National Guard and Reserves

Do I need to occupy the property if I buy a duplex or multi-family property?

When you apply for a mortgage, you’ll need to declare the property type: principal residence, a second home, or investment property. So when you buy a duplex as an investment property, declaring it as your principal residence will give you the best mortgage options and the lowest mortgage rates.

You can declare yourself the owner-occupant by living in one of the units then get the benefits of a principal residence mortgage.

If you decide on a conventional mortgage, you don’t need to live at the property. However, it’s a requirement to live in one of the units if you want FHA financing. What’s more, there are a number of discounts, low down-payment options, and other advantages when you declare your property as a primary residence, which we blogged about here.

RELATED: How to declare your property as a primary residence (and why it matters)

Can I use the FHA 203K loan to buy a duplex that needs work?

With the FHA 203k loan, you can buy a duplex that needs a lot of work and make the repairs manageable with one mortgage. The 203k combines the price of the property with all renovation costs and finances the total with one mortgage. With an FHA 203k, the mortgage includes the purchase price plus all the renovations, so you’re able to spread the renovation cost over the life of the loan. One mortgage, one monthly payment. There are great benefits and a few restrictions, which we blogged about here

RELATED: When is it smart to use a home equity loan or home equity line of credit for home renovations?

What credit score do I need to buy a duplex?

Buying a duplex or fourplex as an investment property can be a lot less stressful when you know what to expect. Mortgage lenders look at your credit report and your debt-to-income ratio to evaluate risk, which affects the terms of your loan offer. 

Conventional mortgages typically require a credit score above 700, though mortgage lenders have flexibility. FHA financing requires a credit score above 580. Find out your credit score by downloading your free credit report. You can fix any errors, dispute negative marks, and take action to boost your credit score in less than 60 days, which we blogged about here.

A good credit score will help you secure the lowest mortgage rate. What’s more, there are specialty loan programs available for homebuyers who want to buy a duplex or multi-unit property.

Talk to a mortgage advisor (for free) to discuss options that can save you money.

Take Action

If you’re ready to buy a duplex or multi-family property, we can guide you through the process and help secure the best financing. There are several loan options and different advantages available depending on your homeownership goals. Connect with a local mortgage advisor to get started. We’d love to help.

September 28, 2021
blog man home improvement

So you’ve spent the better part of the past two years at home, and you’re finally ready to give your home a makeover. Maybe it’s a quick facelift or a backyard garden. But for a lot of homeowners, now is the final push before the holidays to take on bigger home remodeling projects like kitchen and bathroom upgrades, new flooring, or even a full-scale home renovation.

The costs of a home remodel vary dramatically by location, but mortgage rates are still low. This means you can access your home equity at a low rate and stay on budget for your dream home remodeling project.

First, beware of these hidden costs so you can plan ahead.

Related: 7 Ways to Increase the Value of Your Home on Your Next Remodel

TOP 5 HIDDEN COSTS OF A HOME REMODELING PROJECT

1. Changing the Scope of the Project

Believe it or not, the biggest hidden cost to a home remodel is when the homeowner changes their mind. More than half of all remodeling projects face a “change in scope” which dramatically increases the cost. Changing your mind on kitchen cabinets or tile flooring, for instance, after supplies have been ordered. Or deciding on structural changes once new framing has begun.

In almost every case, the work has started, materials have been ordered, or supplies have been delivered, and the cost is already measured. As much as possible, try to envision a home remodeling project from start to finish and ask questions before the work begins. Often there’s a lot of work on the back end that the homeowner may not see, which becomes a surprise when they change their mind.

Related: How to Finance a Renovation with the Fannie Mae Homestyle Loan

2. Building Codes and Permits

Many home remodels look clear-cut on the front end. But once the work begins, it turns out that new work has to be completed to bring the home up to code. Why? Building codes often change over time, so there are typically new codes and permits since the home was first built. Across most states in the country, if a contractor discovers something that isn’t up to code, they are required to do the work to bring it up to code.

Even if the new work wasn’t quoted in the home remodeling project, the contractor is required to meet current building codes, and that cost will be passed on to the homeowner. Allow a larger budget to meet these unsuspected changes, especially if your home was built several years ago.

3. Eating Out and Moving Out

During a kitchen remodel, eating out can become a growing expense and one that is rarely planned for. A home remodeling project in the kitchen usually means you won’t have power, gas lines, or working appliances. Some homeowners set up a temporary kitchen in the basement or garage, but the novelty can wear off quickly.

Even home remodels outside the kitchen often push homeowners out. People get tired of the dust, construction, noise, and general chaos. What might be one night out turns into ongoing restaurants and takeout. With larger projects, some families find themselves moving out temporarily to take a break from it all. Plan ahead so you can reduce stress and budget for the cost.

Also, don’t forget your pets! You may need temporary boarding or plan to take them with you.

Compare: Should I use a Home Equity Loan or HELOC for a home remodel?

4. Surprises and Structural Changes

Many hidden costs are hiding in the floorboards. Literally. Pests, termites, wood rot, mold, water damage. Many homes have hidden structural damage that is only discovered once a home remodeling project is underway. While there’s isn’t a tried and true way to plan ahead for these changes, it’s smart to prepare for the possibility. Have finances prepared so that you can face the problem head-on if any structural damage or surprises come up. This will reduce stress and keep the home remodeling project moving forward.

5. Homeowner’s Insurance

Home remodels often increase the value of your home, so it’s a good idea to revisit your homeowner’s insurance coverage. For one, you want to make sure the renovations are covered under your policy and that your coverage meets your home’s new value. Certain remodeling projects such as adding square footage, a new office, or a full-scale kitchen remodel will increase the value of your home. It just takes a quick call to your service provider to make sure you have the coverage you need.

Why is home remodeling so expensive right now?

Millions of people are spending more time at home than ever before: online school, remote work, DIY projects, home gardens, you name it. As a result, home remodeling and renovations have skyrocketed and the demand for contractors has jumped up in tandem. But even though construction costs are inching upwards, it’s still smart to tap into your home equity and get the job done while mortgage rates are low.

What’s the best way to pay for a home remodeling project?

Many homeowners consider a home equity loan or a home equity line of credit for a home remodeling project. Others refinance a mortgage or turn to personal loans and credit cards.

The truth is, mortgage rates are still low and there are several custom home loan options that can save you money. A preferred home loan that gives you access to your equity can help you stay on budget and finance your home remodel without financial stress.

It’s always worth it to connect with a local mortgage advisor to discuss your options–especially when it comes to a home remodeling project or renovation.

Taking Action

Connect with a mortgage advisor to determine the best path to finance a home remodeling project. Remember, you can access your home equity in several different ways — cash-out refinancing, a home equity loan, a home equity line of credit, or custom home renovation loans. We can help you decide the best option that will save you money and fit your home remodeling budget. Connect with a local mortgage advisor to get started. We’d love to help.

September 14, 2021
7 Ways to Increase the Value of Your Home

Deciding to increase the value of your home is always a good move, whether you’re getting ready to sell your house or renovate for the long term. For a lot of homeowners, upgrades and renovations are par for the course.

Let’s face it, over time, our homes become outdated, weathered, and need a fair amount of maintenance. But which upgrades are worth the effort when you want to increase the value of your home?

This past year, homeowners are spending more and more time at home, working remotely, taking on DIY projects, spending time with friends and family. At the same time, many are deciding to relocate and list their home for sale.

Whether you’re planning to relocate or stay put, here are the top 7 ways to increase the value of your home.

RELATED: How to finance a home renovation project with the FHA 203k loan

TOP 7 WAYS TO INCREASE THE VALUE OF YOUR HOME

1. Add square footage to your home.

Increasing the usable square footage of your home will directly improve your home’s value. Home appraisals evaluate the livable square footage of a home in addition to other comparables in the neighborhood (such as the number of bedrooms and acreage). Therefore, adding a bedroom or an office will automatically increase the value of your home by the added square footage.

Another thing to consider is adding an in-law unit or ADU to the property. In a neighborhood with limited space, adding livable space will increase the value of your home and boost the appraised value (which we blogged about here).

RELATED: Everything you need to know about home appraisals

2. Improve your home’s curb appeal.

Curb appeal doesn’t always translate to a higher home value in a formal appraisal. However, curb appeal has a huge effect on buyers when they visit a home for the first time. So when you compare a handful of homes with similar square footage in the same neighborhood, curb appeal pulls more buyers and generates higher interest. In short, strong curb appeal leads to better offers when you’re getting ready to sell your home.

Landscaping is the path to your front door. Make sure to tidy up the yard, plant some seasonal flowers, keep the grass maintained and freshen up any ground cover. Larger expenses might be fixing walkways or driveways or adding more substantial landscaping. The goal is to get a buyer to stop and shop!

3. Add a fresh coat of paint to your home’s interior and exterior.

Right along with curb appeal, giving your home a fresh coat of exterior paint will improve the perceived value and tell prospective buyers that your home is well-cared for and maintained. Move toward neutral colors that are current for the times and don’t forget your front door.

Interior paint is one of the lowest cost updates you can do to bring a big return. If you’re selling your home, you might need to lean neutral and put a pause on bold choices. Bold colors and personality are beautiful if you’re planning to stay! But for prospective buyers, the interior colors and paint should be welcoming and neutral—a home they can see updating with their own style.

Renovating a fixer-upper? The Fannie Mae Homestyle loan might be a good fit (which we blogged about here).

4. Remodel your kitchen with a modern take.

A kitchen remodel can be costly no matter how you slice it. Often, updating cabinets with a fresh coat of paint and new hardware can have a big impact. Next, update lighting fixtures and replace countertops if they’re worn or outdated.

A bigger remodel can be worth it for many homeowners, especially if you want to stay in your home for a long time. Consider updating your appliances for both aesthetics and energy efficiency. Flooring, countertops, and adding square footage are next on the list. There is a large range of costs vs. value when it comes to kitchen remodels, so work with your realtor if you’re getting ready to sell your home.

Minor kitchen remodels are expected to bring an 80% return, while major remodels have an estimated 48% return on the investment. The value will increase over time as equity builds, so consider this if you’re looking to sell quickly.

RELATED: Compare the benefits of a Home Equity Loan vs. a HELOC for a home renovation

5. Give your bathroom a fresh feel.

The bathroom is one of the most important spaces to consider if you want to increase the value of your home. The good news is that small changes can make a big difference. Consider a minor remodel, including fresh paint, updated hardware and lighting, or even DIY bath and shower updates. If you want to increase the value of your home, think about expanding your bathroom or adding updated features like a walk in shower or soaking tub.

For larger projects such as heated flooring and custom fixtures, most homeowners see a 52% return. As your equity grows, the impact will increase as well. Finally, an updated bathroom can increase interest and generate offers much faster. Updating the bathroom should be at the top of your list.

6. Make your home more energy efficient.

There are a lot of options to increase the value of your home and make it more energy-efficient. Consider installing a smart thermostat, improving insulation, and replacing old windows. Take notice of attic insulation and roofing to decide if updates are needed, as well as updating to energy-efficient appliances in your home. Upgrades will improve the comfort and efficiency of your home and also save on utility bills.

Consider adding energy-efficient technologies and safety features. “Smart” technologies are becoming more popular among buyers who are energy-conscious and value home security. Smart tech doesn’t always increase the value of your home for a mortgage refinance appraisal, but new buyers are typically willing to pay more for a modernized home.

7. Get organized! Set a time to declutter and stage your home.

Organize and declutter to give your home newly found space and breathing room. If this feels like an overwhelming project, consider hiring a professional organizer or invite a few friends to help sort and giveaway belongings that are ready to move on. There are a lot of fun ways to get organized along with DIY projects that will keep your home looking bright and welcoming.

Staging is almost always worth the effort when it’s time to bring your home to market. Consider hiring a professional stager or invite a few friends to help you tackle the job. The goal is to create a welcoming space that feels like home but also feels like anyone’s home. Potential buyers will want to picture themselves in your space, which means family pictures and personal style might need to be on pause.

Summary

When you’re getting ready to update your home, take the opportunity to increase the value of your home at the same time. Curb appeal, fresh paint, and decluttering your home can generate buyer interest and offers. Likewise, kitchen and bathroom remodels, adding square footage, and making your home energy-efficient can increase the value of your home and get you a higher appraisal.

If you’re looking to sell your home, talk with your realtor to decide the best place to invest your dollars. And if you’re looking to stay, connect with a mortgage advisor to talk about mortgage and refinance options. A local mortgage expert can help determine the best path to access your equity and fund your renovations.

Next Steps

Consider how you want to fund your home renovations and upgrades. You can access your home equity by refinancing with cash-out, applying for a home equity loan, or even a home equity line of credit. We can help you decide which path will save you the most money and increase the value of your home. Connect with a local mortgage advisor to get started. We’d love to help.

September 9, 2021
Finance a Fixer-Upper with the FHA 203(k) Loan

The FHA 203k home loan is a smart move if you’re looking to buy a fixer-upper. The housing market is still strong in many areas, bidding wars are slowing down and foreclosures are starting to pop up. Fixer-uppers offer a financial opportunity to buy a home priced below market in a great location.

With the FHA 203k loan, you can buy a home that needs a fair amount of work and make the repairs affordable with one mortgage. The 203k combines the price of the home with all renovation costs and finances everything with one mortgage. Since the home loan covers the purchase price plus all the renovations, you’re able to spread the cost of repairs over the life of the loan with one affordable mortgage payment. 

What’s more, all the repairs and renovations must be approved in advance for a 203k loan so that you won’t end up in a money pit with endless repairs. There are a few restrictions along with great benefits, which we cover in this post. 

RELATED: When is it smart to use a home equity loan or home equity line of credit for home renovations?

Is the FHA 203k loan a good idea? Here’s how it works.

The FHA 203k home loan is a government-backed mortgage that’s insured by the Federal Housing Administration. It’s created to help homeowners buy and remodel a home that needs work. It has a few common names: FHA 203(k) Home Loan, Section 203(k) Home Loan, Mortgage Rehab Loan, 203k Loan Program. 

The FHA 203k loan combines the purchase price of your home with the total cost of repairs into one mortgage, including labor and materials.

That said, there are rules and regulations you have to follow to get approved for a 203k mortgage. For example:

  • The property must be your primary residence*
  • Renovation costs must be greater than $5k
  • You must work with a HUD consultant
  • All repairs must be completed by a licensed contractor
  • FHA 203k loan requires mortgage insurance
  • An FHA appraiser approves final estimates

*If your residence isn’t safe to live in during construction, the FHA 203k loan will cover your mortgage payments. Also, the 203k loan isn’t available for investment properties or homes priced above current conforming limits ($822,275 in high-cost areas, $510,400 in lower-cost areas). 

What is covered under FHA 203k?

Homebuyers can use a standard FHA 203(k) mortgage to do almost any type of renovation except for luxury amenities (e.g., a swimming pool or backyard kitchen). Also, all updates and repairs must be considered “permanent” for the home. A few popular renovations that are covered:

  • Upgrades to remove health and safety hazards
  • Improve accessibility for a disabled person
  • Update plumbing and sewer systems
  • Structural changes such as adding bedrooms
  • Remodel bathrooms and kitchens
  • Install or replace flooring, windows, roofing
  • Major landscaping projects

It’s a good idea to meet with contractors early to make sure your project can get started as soon as the loan closes. Make sure to find a contractor with experience working on projects financed with an FHA 203k loan. 

All renovations financed with a 203k loan must be finished within six months.

RELATED: The Fannie Mae Homestyle Renovation Loan for Fixer-Uppers

How much do you have to put down on a 203k loan?

The minimum down payment is 3.5% for applicants with a credit score above 580. For homebuyers with a credit score between 500-580, the typical down payment required is 10%. Gifted funds are allowed from friends and family, and there are also down payment assistant programs that might be available. Connect with a mortgage advisor to decide which mortgage program will save you the most money.

If your credit score is wavering, learn how to improve your credit score in less than 60 days which we blogged about here.

Can I use a 203k loan to flip a house?

To qualify for a 203k loan, the property must be your primary residence. So, if you’re planning to flip a house quickly while living in a different property as your primary residence, then the FHA 203k home loan won’t be a good fit.

The upside is that all repairs and renovations must be completed within 6 months for an FHA 203k loan. When all is said and done, there’s nothing keeping you from selling the house once the repairs are complete.

If you’re buying a fixer-upper as an investment property, connect with a mortgage advisor to discuss home renovation options. You could also apply for a home equity loan or a home equity line credit to finance your remodel, which we blogged about here.

How to qualify for an FHA 203k (and why you need an FHA-approved mortgage lender)

Working with the right mortgage lender is essential when it comes to the 203k loan. For one, the Federal Housing Administration (FHA) will only approve 203k home loans from an FHA-approved mortgage lender. Second, financing a fixer-upper with an FHA 203k loan is different from other types of home loans. There is a fair amount of paperwork required to meet application requirements. You’ll need to work with approved contractors and verify all estimates for repairs and materials. In addition, you will often work with a HUD consultant

Talk to your mortgage advisor about home renovation loans to find out which loan is the best fit. Buying a fixer-upper in 2021 can put you on the fast track to financial freedom, and getting approved for an FHA 203k loan might be the best next step.

Once your 203k loan is approved, you can rest assured you’ve got the financing you need to finish the work on your new home. It’s a helpful safety net, especially if this is your first fixer-upper.

RELATED: How to find the best mortgage lender in your area

Summary

Buying a fixer-upper can be a smart financial decision. In general, the FHA 203k loan is a good fit for a property that needs a substantial amount of work and is priced within FHA conforming limits. The property must be your primary residence and all work must be approved by the FHA. Requirements are set by the FHA, such as limits on how much you can borrow and how you can spend the money.

The main benefit is that all the construction work and repairs are estimated at the onset and rolled into one mortgage. You’ll be protected from over-extending yourself or falling into a money pit after you buy the property.

Quick reminders: Properties that need less than $5k in repairs won’t qualify for a 203k loan. Also, the FHA 203k loan has a limit on how much you can borrow, so it’s not a good fit for luxury renovations.

Take Action

There is a lot of paperwork and requirements to get approved for an FHA 203k loan, so it’s better to be prepared before you make an offer. If you’re considering buying a home that needs work, we can help you decide what type of mortgage is best for your renovation. Connect with a local mortgage advisor to get started. We’d love to help.

July 24, 2021
blog mom and baby at home

A conventional mortgage is one of the most popular mortgage products in the U.S. today, offering lower costs and better mortgage rates than most other loan products. In short, conventional mortgages are backed by private lenders such as banks, credit unions, and mortgage companies instead of backed by the government.

Since conventional mortgages aren’t government-backed, lenders have more freedom to meet the custom needs of individual homebuyers. Conventional mortgages offer lower rates, greater flexibility, and better loan terms for qualified borrowers buying a home or refinancing a mortgage.

We’ve been hearing some common questions lately:  Is it hard to get approved for a conventional loan? What are the pros and cons of a conventional loan? What are the requirements and how do I apply for a conventional loan?

This article can help. 

RELATED: Are you a first-time homebuyer? Check out these special advantages for first-time homebuyers in 2021

How does a conventional mortgage work?


On the surface, conventional mortgages work like most home loans. They offer popular terms (fixed-rate, adjustable-rate, 30-year, etc.) and competitive mortgage rates. Your property is collateral for your mortgage, and there is a payment schedule for the life of your loan.

Conventional mortgages are available through private lenders such as banks, credit unions, and mortgage companies. However, conventional loans are not government-backed mortgages, and there are different requirements to get approved depending on the lender.

Government-backed mortgages, such as FHA loans, VA loans and USDA loans, typically offer less strict criteria to qualify and require smaller down payments. These mortgages are typically easier for homebuyers to get approved, but the costs and fees to service the mortgage may be higher than a conventional loan.

Conventional mortgages, on the other hand, often have stricter requirements to qualify but lower costs overall. Conventional mortgages are ideal for primary residences, jumbo loans, second properties, vacation homes, and investment properties.

If you have verifiable income, a high credit score, and cash reserves, then a conventional mortgage might be your best choice.

Conventional loans fall into two categories: conforming and non-conforming.

Conforming loans require a mortgage at or below $548,250 in most of the U.S. for a single-family property. In areas where the cost of living is higher, the conforming limit is $822,275. The FHFA sets the loan limits, which meet the requirements for Fannie Mae and Freddie Mac.

Fannie Mae and Freddie Mac then purchase and guarantee the loans, then sell them on the secondary market. This process frees up mortgage lenders so they can recover capital quickly and continue to originate, underwrite and fund home loans for homebuyers. 

A non-conforming loan is any mortgage that surpasses the mortgage limit set by Fannie Mae and Freddie Mac ($548,250 – $822,275 depending on the area). A jumbo loan is a common example of a non-conforming conventional loan. 

To find out the limits in your area, connect with a local mortgage advisor. An experienced mortgage advisor can discuss your home loan options and recommend a customized home loan. Together, you can meet your financial goals and save money on your mortgage.

What are the pros and cons of a conventional loan?

Depending on your situation, a conventional mortgage could save you money on your mortgage. These pros and cons can help you make an informed decision.

Benefits of a Conventional Mortgage

Available for all types of properties

Conventional mortgages can be used for a vacation home, a rental property, investment property, or your primary residence. By contrast, most government-backed loans are only available for your primary residence.

Competitive interest rates

Conventional mortgage rates are very competitive and typically lower than FHA loans. Qualified borrowers typically have verifiable income, cash reserves, and good credit history.

Low down payment requirements

Many conventional loans offer the best terms with a 20% down payment, but you can also apply for the Conventional 97 which only requires 3% down. This is a great option if you have high cash reserves but want to invest your money elsewhere.

Flexible loan terms

A conventional mortgage is available for purchase mortgages, refinancing, renovations and investment properties. Mortgage options include fixed-rate loans, adjustable-rate loans, 15-year and 30-year terms, as well as specialty loan products.

Higher purchase limits

Conventional loans are ideal for jumbo loans and unique properties that exceed limitations set by other loan products.

Financial freedom

Conventional loans can be customized alongside specialty loan programs to help you reach financial freedom.

*If you’re looking to save money on closing costs, check out our recent article on a no-closing-cost loan, which we blogged about here.

Drawbacks of a Conventional Mortgage

PMI might be required

Private mortgage insurance (PMI) will be required until you hold at least 78% equity in your home. You can bypass this requirement by providing a 20% down payment.

Strict DTI criteria

Mortgage lenders typically require borrowers to have a maximum debt-to-income ratio between 36%-43% to get approved for a conventional loan. Some lenders will go as high as 50% DTI, though this is less common.

Higher credit score requirements

A credit score of at least 620 is typically required for a conventional loan. However, aim for a 700+ credit score to get a conventional mortgage with the lowest mortgage rate and the best loan terms.

Zero-Down Payment options are not available

If you’re looking for a no-money-down mortgage, check out government-backed mortgages like the VA loan or a USDA loan.

* Conventional mortgages are often a top choice for homebuyers who are buying a home as an investment property, a second home, or want to buy a home with a purchase price above conforming limits.

RELATED: How to get qualified for a mortgage with a friend or family member

How to Apply for a Conventional Mortgage

Step 1. Estimate how much you can afford [click here]

Step 2. Start your free custom mortgage application [click here]

Step 3. Gather your documentation (e.g., identification, income, assets, employment)

Step 4. Connect with a mortgage advisor to discuss your options [click here]

Step 5. Close on on your new mortgage and start saving money!

If you’re self-employed or plan to qualify using non-standard income, read this recent article we blogged about here…

Is it hard to get approved for a conventional loan?

Homebuyers with established credit and solid financial positioning will typically qualify for a conventional mortgage with the best terms: the higher your credit score, the better your interest rate.

Mortgage lenders will compete for your business if you have a high credit rating, a low debt-to-income ratio, consistent income, and high cash reserves.

On the other hand, homebuyers with a short credit history or more debt than usual, might not get approved for a conventional loan. Side note, if you’ve got student loan debt and want to get approved for a mortgage, we blogged about that here.

A few criteria that might keep you from getting approved for a conventional loan:

  • bankruptcy or foreclosure in the past 7 years
  • credit score below 650
  • debt-to-income ratio above 45%
  • down payment less than 10%

What are the minimum requirements to qualify for a conventional mortgage?

  • credit score 620+
  • debt-to-income ratio less than 43%
  • proof of employment
  • verification of income
  • down payment of at least 3%


Worth noting, borrowers who have a DTI of 36% or less, a 700+ credit score, and high cash reserves will be able to get the most competitive loans.

RELATED: HOW TO BOOST YOUR CREDIT SCORE IN LESS THAN 60 DAYS

Best Alternatives for First-time Homebuyers

If you’re a first-time homebuyer, check out the top five mortgages for first-time homebuyers, which we blogged about here. Even if you don’t fit the profile for a conventional loan, there are several advantages available to first-time homebuyers.

The FHA loan is another great option for homebuyers. The FHA loan has flexible approval requirements and offers low rates and a low down payment.

If you’re an active member of the military, the VA loan is a great option with several benefits, including low rates and a 0% down payment requirement. Find out more on our recent article posted here.

Working with a qualified mortgage advisor who understands your situation is the best decision you can make. An experienced mortgage advisor can recommend custom loan options and help you get approved for a preferred mortgage.

Next Steps

When you’re ready to apply for a mortgage or refinance, an experienced mortgage advisor can help you decide whether or not a conventional mortgage is the best loan for you. We offer homebuyers specialty loan products, conventional loans, government-backed mortgages and more. Connect with a mortgage advisor to discuss your options and make a plan that can help you save money on your mortgage. We’d love to help.

April 26, 2021
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The Fannie Mae HomeStyle Renovation Home Loan is a solid opportunity for homeowners excited about buying a fixer-upper. Even if you haven’t thought about buying a home in need of repairs, the HomeStyle loan has a full suite of advantages worth considering.

Why? Housing inventory remains low, rates dropped again this week, and the Fannie Mae HomeStyle renovation loan folds the cost of renovation and repairs into one mortgage. You won’t fall into a money pit with unlimited surprises, since the entire renovation is planned and approved before the loan closes.

The HomeStyle renovation loan reduces risk (for you and your lender) by approving a final loan amount covering all updates and repairs before the loan closes. Once your approved mortgage closes, you’ll be able to start improvements right away and enjoy the peace of mind that comes with one mortgage payment.

Fixer-Uppers are a Smart Move in Today’s Housing Market

Buying a fixer-upper isn’t always a popular decision. New homeowners often want a property with great curb appeal and everything ready to roll. Some think that fix-and-flip buyers are the only ones purchasing homes that need a lot of repairs. But in reality, this isn’t the case.

Mortgage interest rates dropped again this week despite signs of inflation, and the majority of homeowners are refinancing instead of moving which means housing inventory is still low.

A decade ago, homeowners might have traded up, moved to a bigger house, or even a better location. But with so much uncertainty in the economy, more people are staying put, which means housing inventory might remain low for a while. 

The HomeStyle loan requires a bit of work upfront to estimate the cost of repairs and get approved. Keep reading to see the benefits.

Fannie Mae Homestyle Renovation Loan: How it Works

Fannie Mae HomeStyle Loan is a government-backed loan designed to help homeowners purchase a home in need of repair. The cost of repairs and renovation is estimated ahead of time, so you have one mortgage that includes the entire amount (renovation costs + purchase price) in one monthly payment.

A designated custodial account holds the funds for renovation and repairs. As soon as the loan closes, you’ll begin paying your monthly mortgage. The contractor can start work immediately and submit requests for funds at each milestone. Inspection will take place each time there is a “draw” on the account.

When the work is complete, there is a final inspection and appraisal. A bit of business to change to the title, and you’re ready to enjoy your new home!

The HomeStyle Loan is Incredibly Flexible

You could put in permanent landscaping features such as a pool or an outdoor kitchen, build an accessory dwelling unit (ADU), upgrade the interior with brand new bathrooms, or build an extensive remodel.

One caveat: The HomeStyle home loan does not allow homeowners to tear down the existing structure to build a new one. Also, all renovations must be affixed to the property (permanent).

How to Apply for the HomeStyle Loan

Step 1: Find an approved lender and start the process to get pre-approved.

Step 2: Select a licensed contractor and work together to create detailed plans and a clear schedule. Create a timeline with milestones to show how long it will take.

Step 3: Share the final plans with your lender.

Step 4: Schedule an appraiser to inspect the home and review the plans. The appraiser will provide a valuation based on the “finished property.”

Step 5: Discuss the results with your lender to confirm how much you’re approved to borrow.

Once the final amount for the HomeStyle renovation loan is approved, you’re on your way to one simplified mortgage & a renovated home!

Eligibility Requirements

If you’re wondering who is eligible for the Fannie Mae HomeStyle Renovation Loan, it’s similar to conforming loan standards. While there is a fair amount of work upfront to apply, the eligibility requirements are fairly standard:

Homeowner Requirements:

  • Evidence of reliable income via tax returns
  • Verifiable employment & regular income
  • Loan-to-value (LTV) < 97%
  • Debt-to-income ratio (DTI) < 45%
  • Credit score 620+

Property Requirements:

  • Detached single-family home
  • Townhome, condo, manufactured home
  • Readily accessible roads that meet local standards
  • Served by utilities that meet community standards
  • Construction costs up to 75% of the home’s value

Second homes, investment properties, and 1-4 unit properties are possible, but the requirements for the borrower might be more strict. You can also use the additional funds to help bring your property up to standard, but the scope of work will need to be in the plans.

Additional Resources

The Fannie Mae HomeStyle Renovation Loan isn’t the only home renovation loan available right now. Another option is the FHA 203(k), and the VA Renovation Loan has exclusive benefits for members of the military. All of these options keep things manageable with one monthly mortgage payment that includes renovation costs.

Final Takeaway

If you’re ready to meet the challenge, the HomeStyle renovation loan will give you everything you need to build the house of your dreams AND take advantage of low rates. Properties that might be less desirable to some could be a great opportunity with the HomeStyle renovation loan.

Next Steps

Working with an experienced mortgage advisor can help you reach your financial goals. If you’d like to understand more about the Fannie Mae HomeStyle Renovation Loan, give us a call to discover what’s possible. We’d love to help. 

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April 17, 2021
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Building equity in your home is one of the great advantages of being a homeowner. Accessing your home equity when you need it is even better. So when it comes to home improvement and house repairs, what’s the best way to tap into your home equity? For homeowners who have seen a big jump in the value of their home in 2020, you have a lot of options. This short article breaks down the benefits and drawbacks of using a Home Equity Loan vs. HELOC (Home Equity Line of Credit) for home repairs and renovations.

Home Equity Basics

Home equity is the financial difference between what you owe on your home (your mortgage balance) and the value of your home (based on a formal appraisal). For example, if your current mortgage balance is $478k and the current market value of your home is $680k, then you’ve got a little over $200,000 in home equity.

When you want to access the equity in your home, most lenders will only approve up to 80% of your home’s value. This allows for market fluctuations in property value and lowers the risk of foreclosure in the eyes of the lender. In the example above, the 80% Loan-to-Value maximum would be $544k, giving you potential access to $65k.

How to Use Home Equity Funds: Home Renovations, Repairs, and Remodels

To decide if a home equity loan or home equity line of credit might be a good fit, it’s a good idea to figure out how you want to use the funds. A few popular updates are:

  • kitchen remodels
  • bathroom remodels
  • new roofing, siding, windows
  • major landscaping & backyard improvements
  • home office additions

Since both a home equity loan and a home equity line of credit are big financial commitments, take time to consider the value of the improvements you want to make. Renovations don’t necessarily have to improve the value of your home but they will work to your benefit if they do. Both loans are designed to help maintain and improve the value of your home. Ideally, you want to increase your property value in the process. If you need to sell your house for an unexpected reason, you won’t be upside down when it comes to your mortgage.

Home Equity Loan Advantages

Home equity loans are almost always fixed-rate loans with set terms, fixed monthly payments, and a fixed payment schedule. When you’re approved for a home equity loan, you get the full amount in one lump sum. Then you pay off the loan in fixed payments over the life of the loan.

Highlights and Advantages:
  • A low-interest rate that is locked in for the life of the loan
  • Fixed monthly payments which make it easy to budget and plan
  • Lump-sum disbursement so you can start a big project right away
  • No limitation on the use of funds
  • The interest on your home equity loan may be tax-deductible

Worth noting: higher credit scores mean lower rates. Check for prepayment penalties in case you decide to pay it off sooner than scheduled, or if you might want to refinance later.

Home Equity Line of Credit (HELOC) Advantages

Home equity line of credit operates like a revolving credit account. Instead of having a set payment schedule and a fixed rate, HELOCs give you access to a line of credit with a maximum limit. You can use the funds at any time and you won’t accrue any interest until you draw from the account. HELOC’s have a set draw period (typically 10 years) and a variable APR which is based on the prime rate and market trends.

Main Benefits:
  • Access as much or as little money as you want to meet the needs of your projects
  • Interest accrues only when you access the funds
  • Repayment terms are flexible, pay it off or make minimum monthly payments
  • Use the funds for whatever you want
  • The interest on your HELOC may be tax-deductible

Additional Resources for Home Renovations

Home equity loans and HELOC’s are both set up as a second loan using your home as collateral. If you don’t want a second loan, or you want to refinance your mortgage and take advantage of other financing options, you’re not alone. A few other options to consider:

  1. Fannie Mae HomeStyle Renovation Loan
    A conventional home loan that wraps everything into one mortgage: purchase price (or mortgage balance), repairs, updates, labor, and materials.
  2. FHA 203(k) Home Loan
    A government-backed home loan to purchase a fixer-upper or refinance a home loan to cover major repairs or renovations. One mortgage will cover the purchase price (or refinance) plus the costs of all upgrades and repairs.
  3. VA Renovation Home Loan
    The VA renovation home loan is a government-backed mortgage with exclusive benefits for active-duty service members, veterans, and eligible spouses. It rolls the cost of the mortgage plus the cost of repairs and upgrades all into one home loan

Each of these renovation home loans has various requirements and limitations for loan approval. Talking with a mortgage expert can help decide which options will save you the most money and help you reach your financial goals.

TAKING ACTION

If you’re thinking about tapping into the equity in your home, talk with an experienced mortgage advisor. A great loan advisor can save you money and keep the process moving easy and stress-free. Just knowing what to expect can help you decide the best action to reach your goals. When it comes to saving money on your mortgage, we can help.