The Latest Owner Builder Home Improvement Loan
Home improvement loans are gaining popularity as more people opt to fix up their homes in today’s economy instead of buying or building new houses. And, saving money during the renovation is more important than ever. The latest twist in the mortgage industry’s home improvement niche allows you to manage the process yourself as an owner builder and cut out the costs of a general contractor.
A home renovation or rehab loan is a great product for a person who either owns a home that needs some work or who has found a home to buy that isn’t quite right. In today’s housing market, there are a myriad of houses to choose from. Indeed, the large number of foreclosures that have flooded the market means that it’s truly a buyer’s paradise in terms of options and prices.
One problem with foreclosures, though, is that they often need some work to fix them up. For many borrowers, that would mean that you first get a loan to buy the property. Then, you find a way to finance the repairs, either through credit cards or a second mortgage – neither of which is a very good option.
However, there is a great home improvement and renovation product that is growing in popularity around the country, because it allows you to purchase or refinance a home while wrapping in the costs of repairs/ improvements. To make the product even more exciting, you are allowed to manage the process yourself without hiring a general contractor. This is known as owner builder construction, or, in this case, owner builder renovation.
Many people mistakenly think of owner builder construction or renovation as a process that requires you to do the labor yourself. However, this couldn’t be farther from the truth. In reality, owner builder renovation simply means that you will manage the process by hiring your own sub-contractors and avoid the costs of a general contractor.
Obviously, the more extensive the workload, the more money you will save as an owner builder. But, in today’s economy, every penny saved is helpful, even on smaller home improvement projects. The key is knowing where to get the right financing.
If you want to be an owner builder and manage your home improvement project yourself, you can finance it through the government-insured Federal Housing Administration (FHA) 203(k) Streamline loan. This specific product will allow borrowers to buy or refinance an existing home, and you can wrap in the costs of home improvement repairs up to $35,000.
And, the best part is that you don’t have to hire a general contractor. You can be an owner builder and manage the process yourself. If you want to do some of the labor on your own, then you must show that you are truly qualified by submitting licensing and resume information to the lender. However, even by simply managing the process yourself, you can cut out the costs of the general contractor and save some money on your home improvements.
If this type of home improvement appeals to you, there are some restrictions you should be familiar with. First of all, the loan is not designed for any structural repairs. Instead, it is designed for you to fix items such as new appliances, counters, cabinets, flooring, painting, energy efficient improvements, plumbing, heating, electrical, roofing, porches, etc. So, you can see that there is a pretty extensive list of improvements that fall under the umbrella of this product.
As the owner builder, you hire whomever you wish to use as your sub-contractors. Your loan will take into account the appraised value of the home once it improvements are done. In this way, you won’t have two sets of mortgages – just one loan will cover the purchase and the home improvements together.
As a borrower for the loan, you must meet some minimum qualifications. FHA sets some guidelines, but individual lenders will also apply their own set of criteria for these products. In general, though, most borrowers will need to have FICO credit scores above 580. And, you will need to be able to document enough income to qualify for the new house payments plus your regular monthly expenses. The maximum down payment ever required is 3%, and the borrower typically does not need to have any money leftover in savings (a.k.a., reserves).
These liberal guidelines make the FHA 203(k) Streamline loan a great option for people who otherwise wouldn’t qualify for an owner builder rehab or construction loan. So, if you are someone who likes the idea of being an owner builder to save money during construction or rehab, you may want to consider this government-insured home improvement loan.