203k Loans and Renovating Without Equity

A 203k loan is a renovation loan for your home.  If you want to buy a fixer upper, or you just want to remodel your current home, this is the type of loan that will help you to afford it.

You can buy a home or refinance your current mortgage with this loan and it will allow you to incorporate home improvement into your project.  Here are some of the repair and remodeling projects that would be covered in this type of loan:

• Structural changes
• Modernizing your home’s function
• Eliminating health and safety hazards
• Adding or replacing roofing, downspouts or gutters
• Making the home handicap accessible
• Improving your home’s appearance
• Green, or energy conserving renovations

It will basically cover anything that will help bring an old home up to modern codes.  There are rules surrounding a person’s eligibility for one of these loans, though, and included in those rules is that you’ve had your mortgage for at least a year.  So, that begs the question, what if you have no equity?

Unsecured Consumer Loan

You can still renovate!  There are options for those who need to make renovations but have no equity.  The first is the unsecured consumer loan.  This loan could be a good option for a small renovation project, something less than $10,000.00.  The fact that it’s unsecured means you aren’t putting your house up as collateral against it, and there is no lien on the home.  For this type of loan, your creditworthiness is your security.  This type of loan may have a higher interest rate than a 203k, and it’s not tax deductible, but it can help you get the job done when you can’t qualify for the renovation loan.

One-Time Close Construction Loan

This loan is more for those of you who want to do a much bigger renovation than you could with the unsecured consumer loan.  This loan actually uses the future value of your home – after renovations – to determine the funding for your project.  It will usually require the submittal of complete construction drawings and a cost breakdown of the project in its entirety, but you can have the construction loan and long-term mortgage loan finalized in one fell swoop using this method.  In order for this funding method to be useful, however, you have to be able to fund your design work ahead of time using another method.

Of course, it goes without saying that using your personal savings is preferable to taking out a new loan, just as using a credit card is something you’d have to be very careful about due to high interest rates.  Whatever funding method you choose, we are always happy to help walk you through it.