In today’s housing market, with interest rates and housing prices at decade highs, affordability has hit an all-time low. Many eager & wannabe homeowners just can’t afford to purchase a home in today’s market. But fear not, there is a solution! Renovation loans are becoming increasingly popular as they offer a viable solution to this dilemma. These loan programs not only facilitate the purchase of homes but also cover the cost of renovations, unlocking potential in otherwise overlooked properties.
So what are renovation loans and how do they work?
Glad you asked! Renovation loans are mortgages that give a homebuyer the ability to not only finance the purchase of a property, but also finance the renovation (or remodel). These renovations can range from simply redoing the flooring to adding a pool to a full gut remodel, and everything in between. They can even be used to add additional square footage like an ADU (mother-in-law suite/guest house). And the best part is they do not require a lot of cash out of pocket! Renovation loans require as little as a 3% down payment in many cases (3% of the total project cost: purchase price + renovation budget).
How do renovation loans make buying a home more affordable?
Renovation loans are just as simple as a regular 30 year fixed mortgage. But instead of only covering the purchase of a property, they cover the remodel. Let’s look at an example – Joe Homeowner is ready to buy his dream home. The problem that Joe keeps running into is he can’t find a move in ready property within his budget. Interest rates and home prices in his market are just too high. Joe decides to think outside the box, and instead of finding his dream home, he decides to create it! He finds a property in his dream neighborhood but not in his dream condition. Because the house is not in great shape, it is severely discounted. Joe deicides to purchase the property with a renovation loan and complete an entire gut remodel. This not only turned a run-down property into his dream home in his dream neighborhood, but also gave him the ability to afford a home without breaking the bank. The discount in price and the ability to finance the renovation gave Joe the opportunity to buy a home with a low down payment and lower monthly payment than he would have had if he purchased a move in ready place.
Without the possibility of a financed renovation, Joe would not be a homeowner. He would be stuck renting and paying his landlord’s mortgage.
The true beauty of these renovation loans lies in their ability to transform fixer-uppers into comfortable, modern living spaces. This is a game-changer in a market where affordable housing options are scarce. They also contribute to neighborhood revitalization by improving home values, which in turn helps create wealth and increase homeowners’ net worth.
As the housing market continues to challenge potential buyers with soaring prices and rising interest rates, renovation loans offer an attainable silver lining. They not only provide a pathway to homeownership but also empower individuals to improve and personalize their living spaces in an affordable manner – all under one loan with one monthly payment.
To learn more about renovation loans and other ways to make homebuying actually affordable, reach out to our team:
Mark Tomaszewski | MT Group Lending
Peoples Mortgage Company