Are you interested in making renovations to your home? Maybe you need an extra bathroom or want to add a larger garage. These renovations can rack up expense. You might need a loan. How do you qualify for a home renovation loan?
Qualifying for a home renovation loan depends on which loan you want. Are you adding luxury items, like a sauna or a swimming pool? Fannie Mae’s Homestyle loans cover large renovations with luxury items. Or maybe you’re doing a large renovation but not adding any luxury items. In that case, a FHA 203(k) loan would fit you best. FHA Title I loans work for smaller projects, like making your home wheelchair accessible.
4 Tips on How to Qualify for a Home Renovation Loan
- How’s your credit score? — Your credit score will decide which loan you qualify for. FHA 203(k) needs a credit score of 580 or higher. HomeStyle loans usually ask for a credit score of 680 or higher. The Title I loan requires a score over 700. Remember, you can always improve your creditworthiness if your score isn’t high enough.
- Is a down payment needed? — A FHA 203(k) loan needs at least 3.5% down, whereas a HomeStyle needs a minimum of 5%. A down payment on a FHA Title I loan is rarely if ever needed. Make sure to start saving for a down payment now, while you’re deciding which loan you want.
- Do you have to live in your home? — You need to occupy your home to qualify for a FHA 203(k) loan. A HomeStyle loan is for both owner-occupants and investors. The Title I loan doesn’t require occupying the home or even owning it. Keep in mind, you would need a long-term lease if you didn’t own your home.
- Do you need to have equity in your home? — A FHA Title I loan doesn’t require you to have any equity in your home. Whereas the FHA 203(k) and the HomeStyle do need to know how much equity you have. Your equity, or the lack thereof, will determine the down payment they will require.
There you have it, a quick break down on how to qualify for a home renovation loan. Remember, meet with your lender early and ask questions. You might need time to improve your creditworthiness or save for a down payment. Have fun renovating your home!
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