Category: Loan Types

If you’re looking to purchase a new home but are struggling to find one you can afford, you’re not alone. Across the country, inventory is low and bidding wars are the norm. In the hottest markets (Austin, Phoenix, Nashville), homes are listed for a week or less before they have more than a dozen offers all for more than asking price. Getting your offer accepted is like winning the housing lottery.

Rather than giving up on your dream to get a new house, try switching tactics instead. There’s a mortgage trick savvy home buyers have used for years to get a beautiful home: renovation loans. Think of it this way… We’re all seen dated and odd houses sit on the market while turn-key houses fly off the shelves. Why not purchasing that ugly house and remodel it into a home that works for you?

Home renovation loans work a little like a conventional mortgage, except the cost of renovating the home is tacked onto the loan. So rather than taking out a loan for the purchase price, you take out a loan for the purchase price plus the renovation budget.

How much might extra might a renovation cost? These top renovation projects give you a quick idea of what homeowners paid in 2020, according to HomeAdvisor:

1. Home addition ($52,157)
2. Inground pool ($49,245)
3. Kitchen remodel ($35,317)
4. New exterior siding ($13,974)
5. Bathroom remodel ($13,401)
6. New roof ($9,375)
7. New windows ($9,131)
8. New cabinets/countertops ($5,832)
9. New flooring ($4,680)
10. Decking and porches ($3,291)

Homeowners looking to finance a remodel have two options: FHA 203K loan or Fannie Mae’s HomeStyle Renovation loan. Each is a great option, so let’s break them down.

FHA’s 203K remodel loan
This is a great option for families in low-to moderate-income brackets It’s a loan provided by FHA (Federal Housing Administration). It provides a minimum of $5,000 for renovations and major structural repairs. The kicker is you have to hire a HUD consultant to oversee the project and the money can only be used for:

• Structural alterations and reconstruction
• modernization and improvements to the home’s function
• Elimination of health and safety standards
• Changes that improve appearance and eliminate obsolescence
• Reconditioning or replacing plumbing
• Installing a well and/or septic system
• Adding or replacing roofing, gutters, and downspouts
• Adding and replacing floors and/or floor treatments
• Major landscape work and site improvements
• Enhancing accessibility for a disabled person
• Making energy conservation improvements
   

Even with those restrictions, it’s a great loan if you’re eligible. Qualifications for getting the 203k Renovation Loan is similar to getting a FHA loan.

Fannie Mae’s HomeStyle Renovation loan
These renovation loans are available through Fannie Mae and don’t have restrictions like the 203k FHA loan. You can use the funds for virtually anything you want. Add a tennis court, an inground pool, an over-the-top fountain – and you can do it to both your primary residence as well as a secondary vacation or investor home. The improvement has just two requirements in order to be eligible:

• It must be permanently affixed to the property
• It must add value to the property
  
  

This loan has a lot of possibilities for new purchasers, investors, and secondary home buyers. It’s an opportunity to purchase and renovate a home to gain quick equity.

Refinance and renovate the home you’re in
If you can’t purchase the home you want, consider refinancing with a renovation loan and make your current home the one you want. Renovation loans are available for the initial purchase of the property or when refinancing. Doing it now while rates are low may be a smart move for some homeowners.

If you’re open to getting a fixer-upper home and renovate it, reach out to your local Mann Mortgage lender. Together, you can talk about the market in your area, what you’d qualify for, and they can even recommend a builder to work with.

What is a tiny house?
What defines a tiny house is, of course, its size. A tiny house is considered a home under 400 square feet (the average traditional home was 2,301 square feet in 2019). Some are built on permanent foundations with a septic tank and solar panels, but most often they’re built on trailers so they can be hauled from one location to another. This has led to some municipalities labeling tiny houses as “recreation vehicles” unsuitable for a primary dwelling.

Why get a tiny house?
They’re affordable, they consume less energy, and (if they’re on wheels) you can pick up and move where the wind blows you. They cost about the same per square foot as a standard home, but because there’s less square footage, they can be a great option for people who don’t want or can’t afford a large mortgage. In the last few years, they’ve been very popular with 25-40 year-olds that use them as a step towards buying a traditional home. But they’re equally popular with people over the age of 55 who use them as a way of downsizing, a mobile home for visiting family, or as a second home on their property for visitors.

Can you build my tiny home wherever you want?
Despite the growing enthusiasm with tiny houses, it’s still hard to find a place to build one for full-time use. Zoning laws and building codes have minimum size restrictions that most tiny homes won’t meet. Some cities have begun to create tiny house-friendly zones, but they’re rare. Your best bet? Keep your tiny home on wheels or don’t use it as your full-time residence. If that’s not an option, be sure to talk to your local mortgage originator or other housing expert that understands your local building codes and zoning restrictions to see if you can live in a tiny home or not.

Can you get a home loan to purchase a tiny house?
Maybe. If your tiny house is on wheels (and most are) it’s almost always classified as a recreational vehicle (RV). You can’t get a home loan for an RV even if you plan to live it in full-time – you’ll need an RV loan. But, if you build your tiny home on a permanent foundation, you may be able to get a home loan for it. Home loan originators (your bank, mortgage company, or credit union) will likely have a minimum amount they can loan for a home, usually around $50,000. So long as you meet their minimum requirements, you may be able to get a mortgage for the tiny home of your dreams. Your best bet is to reach out to your loan originator directly to see whether you would qualify for a tiny house home loan.

Other options for purchasing a tiny house
If you already own a home and want to add a tiny house to the property it’s on, consider getting a home equity line of credit to finance it.

The future of tiny houses
Job losses due to Covid, stagnant wages, and increased property prices all make it more difficult for first time homeowners to break into the market. There will certainly be a market for tiny affordable houses, but the real hurdle is the lack of legal places to live in one. The American Tiny House Association and the Tiny Home Industry Association are both working hard to promote best practices in home construction and recognize them as a safe and permanent housing option. If you have any question about tiny homes in your community or whether you’d be eligible for a home loan for your tiny home, contact your local mortgage expert at Mann Mortgage today.