Can I include remodel costs in my mortgage?
When it comes to buying New Orleans fixer uppers, we have clients ask “can I include remodel costs in my mortgage” quite often.
After all, there are plenty of homes that are structurally sound and in a great location that need some TLC. Some paint, some flooring, perhaps one or two larger repairs like HVAC or roof. If you’re using an FHA loan to finance your purchase, some of the necessary repairs might rule out a particular property because of its condition. The house won’t get past the inspection or loan approval and you’ll be left feeling disappointed.
FHA 203(k) to the rescue
It’s possible to save on out of pocket remodeling expenses, though, by rolling those costs into an FHA 203(k) loan. The 203(k) allows you to borrow not just the purchase price of a property, but additional funds to allow for updates and renovations that will improve the condition and value of a house.
While it takes a little longer to get a 203(k) loan approved and interest rates can be just a hair more, it may be worth the extra time and money when it allows you to cast a wider net for the perfect home or location.
What repairs can be done with a 203(k)?
According to HUDs website, the types of improvements borrowers can make include:
- structural alterations and reconstruction
- modernization and improvements to the home’s function
- elimination of health and safety hazards
- changes that improve appearance and eliminate obsolescence
- reconditioning or replacing plumbing
- adding or replacing roofing, gutters, and downspouts
- adding or replacing floors
- major landscape work and site improvements
- enhancing accessibility for a disabled person
- making energy conservation improvements
Are there loan limits?
The total cost of both the purchase and the renovations cannot exceed FHA loan limits. In New Orleans, that limit is currently $356,362 for a single family home and $456,275 for a double (as of May 2021).
Can I do the work myself?
Unfortunately, no. FHA requires a licensed and insured contractor to perform all of the work on the property. Their work will be inspected before any money is paid to them.
Want to know more?
Call us at 504-327-5303 and we can connect you with a lender who specializes in 203(k) loans today.