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Key Differences Between Home Renovation Loans

FHA 203K loans and conventional renovation loans actually have a lot in common. You should, however, know the two main differences if you're considering a loan with rehab costs built in.


We had another question from an agent that we wanted to address today. The question was, "When dealing with a repair loan, I have made it through an FHA 203K; however, is there a conventional product as well, and what are some of the differences?"
This is a great question. Yes, conventional does have a repair loan like FHA's 203K, and it's called the Fannie Mae HomeStyle Renovation loan. One of the biggest differences between a 203K loan and a conventional renovation loan is the same difference between an FHA loan and a conventional loan. With FHA, the private mortgage insurance lasts for the life of the loan, no matter what your down payment is, as opposed to a conventional loan, where PMI will drop off when your loan balance reaches 78% of the purchase price. This is just one of the benefits of a conventional loan over an FHA loan.
Additionally, FHA 203K loans only let you make repairs to the property itself; you couldn't add a pool or a fence since the repairs must be within the structure of the home. Conventional home renovation loans allow you to do pretty much whatever you want with the property, so you could install a pool or fence or update the landscaping.
Other than two big differences, both loans basically parallel each other.
Other than these main differences, both loan types basically parallel each other in terms of their guidelines. Both loan programs will lend on the total price of the project, meaning the price of the home itself and the cost of the repairs.
With these two loan packages, some people get confused about the involvement of an HUD consultant. With the FHA 203K loan, an HUD consultant will only be required when the total cost of the rehab exceeds $35,000. This actually parallels the Fannie Mae HomeStyle Renovation loan in that if the total cost of the rehab project is more than $35,000, we are going to require an HUD consultant to oversee the project along with the general contractor making the repairs.
Now, this is just a general breakdown of Fannie Mae HomeStyle Renovation loans in a nutshell. Feel free to share this information with your clients or anyone you know who is interested in a home renovation loan! A lot of different factors come into play with this type of loan, so if you have any questions at all about them, give me a call or send me an email. I would be more than happy to help you out.

How Do You Qualify for a USDA Loan?

Qualifying for a USDA loan is different than qualifying for other loan packages since it's 100% financing. These are the basic requirements you'll need to meet to qualify for this loan.


I recently had a Realtor ask for some clarification on USDA guidelines and how buyers can obtain approval for a USDA mortgage.
There are three basic requirements for a USDA mortgage:
  1. The buyer has to buy in a USDA eligible area. Fortunately, Lake County and all surrounding counties are eligible.
  2. They have to meet household income requirements. It's not just the buyer's income, it's the household's income. If the buyer has children older than 18 living in the home, their income is considered, too, as well as a spouse that's not included on the loan. An easy example is that a family of one to four can't make more than $75,850 in our county, and a family of more than four can't make more than $98,000. Things can be deducted from this income, though, like child care or disability expenses for older adults.
  3. At Success Mortgage Partners, we require a credit score of at least 620. Since it's on the lower end, it's not crazy for people to qualify for, but we do need them to meet that benchmark. USDA allows financing for those with no credit score, but that doesn't mean a bad credit score. Some people have simply never used credit, and that's OK. You can do this by confirming things like rent and insurance payments. USDA looks over the last 12 months. If you have a 620 credit score but still have some derogatory credit like collections or late payments popping up, it can disqualify you.
USDA is also very strict on their debt-to-income requirements. Since it is a 100% financing loan, they want to make sure the buyer can afford the payments, so they are more strict than some other loan programs. They will only allow us to use 29% of their income for their housing expenses and 41% total income for all of their other expenses. This helps prevent buyers from becoming house rich and dirt poor.
The other potential deal killer for a USDA loan is if you own another house. With a USDA loan, you can't have two mortgages. However, there are some exceptions to the rule, like relocation from out of state that leaves you unable to sell your other house prior to your move, in some cases.
Other than that, a USDA loan is just a conventional loan with FHA appraisal requirements; there can't be health or safety concerns with the home as far as the appraisal is concerned.
If you have any more questions about USDA loans or the guidelines surrounding them, please don't hesitate to call or email me. I'd be glad to answer any questions you have!