If you’re looking into buying a home in the Chicago area, a 203k renovation loan can end up helping you save money. If you’re looking to buy with an FHA 203k loan, it will allow you to buy a home, and add in some improvements at the same time. While it costs a bit more to buy with a 203k loan than a traditional mortgage, you can still save a lot of money if you know what you’re doing.
When a Renovation Loan is Appropriate
It comes down to your plans for the home after you buy. Many folks think that a renovation loan is only for buying a run-down property or a foreclosure, and homes that haven’t been cared for very well. However, there are many homes in good condition that are simply out of style, such as homes occupied by older folks that need some updating, that are good candidates for a 203k renovation loan. If the home is out of date and you plan on making a lot of changes once you move in – such as new flooring, new bathrooms, or an updated kitchen – you may need a decent amount of money in order to accomplish those updates.
Funding the Improvements
Where will you get the money to fix up the home and update it the way you would like? If you were considering using credit cards or taking out a secondary loan down the road in order to update the home, it might make more sense from a financial standpoint to consider a renovation loan so you can get the home in the condition you want in a timely fashion. Rather than waiting to renovate, or racking up credit card debt at 12% to 20% interest, a renovation loan will allow you to build in the costs of renovating up front.
When making improvements to a home, you will likely end up adding value to the home. This will allow a lender to refinance the home at an increased value, which can often save you money by raising the amount of equity you have in the home, potentially lowering your interest rate, and lowering or eliminating the amount of mortgage insurance you have to pay.
In summary, a FHA 203k renovation loan is something to consider up front if you’re planning to make improvements to the home sometime in the future, since incorporating the costs of renovation up front can have an immediate effect on the home’s value, while saving you money on secondary loans or high-interest credit card debt. If you have any questions about renovation loans, contact Pete Thompson, your Chicago area mortgage guy, at (630) 481-7188 or at www.PeterThompson.team.