How Does a 203k Renovation Loan Work?
Shows like Property Brothers on HGTV give great examples of a circumstance of when you’d use a renovation loan. You purchase an outdated home and pay the purchase price. You then will be allowed to use money from a rehab escrow account to do repairs on the property. The purchase price of the home plus what is used from the rehab escrow account will be the new principal amount of the loan that you will make payments on.
Smaller Down Payment
A smaller down payment will be required on a 203k renovation loan compared to buying a fully upgraded house. Your down payment amount will be determined by the purchase price of the house. Since you are purchasing a home in need of repairs, the purchase price will be much lower and so will your required down payment amount.
Less Money Out of Pocket
Not only will you make a smaller down payment when purchasing the home, you will also be spending less money out of pocket renovating the house. You won’t be accessing personal funds to purchase new appliances or countertops, you will be taking advantage of the rehab escrow account. You’ll also be paying a small affordable monthly payment with a low fixed interest rate. All of these factors will save you money in the long term.
Customize Your Home How You’d Like
Purchasing a fixer upper allows you to upgrade the home to your specific taste. If you purchase an already upgraded home, you may not like the dark cherry wood cabinets, but not want to replace them because they are in great condition. Doing renovations after you purchase allows you to select finished that suit your taste.
Your Money Goes Further
One of the biggest advantages of using a 203k renovation loan is that you get much more for your money. By purchasing a home that needs repairs, you can purchase a home for a lower price. You can also afford a property that may have been out of reach with a move in ready house.
Gain Equity on Your Home
After doing all of the renovations to your home, your overall property value will have increased. Gaining equity on your home is a big selling point to using 203k loan. Instead of needing to wait several years to see increases in equity, you will see a large jump once your renovations are done.
The next time you are in entering the real estate market, consider using a 203k renovation loan for your mortgage financing. You can take advantage of its many benefits and end up in the perfect home for your family.