There are two kinds of home renovation projects; the ones you plan and the unexpected renovation you may need to do if there is a sudden problem in the home after purchasing it.
An unexpected home renovation can be caused by many things that were not a factor at the time your home inspection was done; a water pipe can burst, a stove can prematurely stop working, or storm damage could cause a leak in your roof.
Repair experts and contractors will be quick to point out that even a home that passes an inspection can develop such problems through no fault of the builder or seller.
An unexpected home repair situation isn’t uncommon for home owners, so what’s a borrower to do when the need arises?
You can fund your home repair out of pocket, or you can consider an FHA refinance loan to pay for the work.
There are two basic options to consider in this situation; an FHA cash-out refinance loan which features no restrictions on how you can use the cash back, or an FHA Rehabilitation mortgage which is available as both a new purchase loan (for those who want to buy a fixer-upper property) and as a refinance loan (perfect for your home renovation needs).
Important Things To Remember About Renovation Work With FHA Loans
- FHA Rehab loans are available for small projects (the Limited 203(k) FHA Rehabilitation Loan) and for major renovations.
- You don’t have to commit to the bigger rehab loan if your work does not involve structural alterations such as load-bearing walls, etc.
- FHA Rehab loans have certain restrictions-you can’t use them to add a luxury feature such as a brand new swimming pool or a tennis court.
- But you can use them to upgrade, repair, and enhance the property in many ways.
FHA Cash-Out Refinance loans are preferable for those who have more equity in the home and don’t want to deal with the restrictions of the FHA Rehab loan (see above), but if your home loan is newer, the FHA Rehabilitation loan may be the better option since more cash will be available for the rehab work.
It’s important to note that with FHA Rehab loans, no cash may go to the borrower like a cash-out refinance. The funds of the FHA rehab loan must go toward the renovation expenses.
Talk to your lender about your repair needs to see which type of FHA loan is best for you.
Learn About the Path to Homeownership
Take the guesswork out of buying and owning a home. Once you know where you want to go, we’ll get you there in 9 steps.
Step 1: How Much Can You Afford?
Step 2: Know Your Homebuyer Rights
Step 3: Basic Mortgage Terminology
Step 4: Shopping for a Mortgage
Step 5: Shopping for Your Home
Step 6: Making an Offer to the Seller
Step 7: Getting a Home Inspection
Step 8: Homeowner’s Insurance
Step 9: What to Expect at Closing