Construction & Renovation Loans
CHOICERenovation Mortgages From Freddie Mac
Why is CHOICERenovation such a major development? It finally bridges the gap in the market where lenders were looking for a convention method to help borrowers with cost-effective home renovation financing
Who are CHOICERenovation Mortgages for?
- Those looking for cost savings by financing BOTH home purchasing and renovation costs in a single-closing transaction.
- Homeowners who need financing to make home improvements or repairs to their existing properties or a home they intend to purchase.
- First-time homebuyers, homeowners looking to age in place, or multigenerational families in need of living space customization.
Single Close Construction Loans
Single Close Construction loans come with a streamlined process. By condensing things to a single originator, single loan, and single closing process – money is saved, move-in time is reduced, and borrowers are protected from unexpected circumstances.
Benefits of Single Close Construction Loans
- You Only Need to Qualify Once – Get qualified before construction begins, and don’t worry about it again throughout the process.
- Single Close Reduces Risk for Borrowers – With a single qualification point, borrowers are protected from bad investments, job changes, loss of income, or other temporary income issues from presenting undue risk.
- You Benefit from Fixed Interest Rates – Predictable, Fixed Rates
- You Only Pay for One Closing Day – Imagine saving up to 3-5% on closing costs!
- You Get Single Appraisal Valuation – Don’t worry about appraisal value that is lower than expected. One appraisal prior to loan closing is all you need!
- 95% LTV Single Close Construction
FHA Construction & Renovation Loans
Construction Loan
This is an all-in-one FHA loan to build a house. Borrowers can roll the costs of buying your own land, construction, and lender fees into one loan.
FHA 203(k) rehabilitation loan.
If the borrowers like a home that needs serious TLC and upgrades, the FHA 203(k) program offers two renovation loan options. FHA 203(k) programs can be used to buy or refinance a fixer-upper home.
How FHA Construction Loans & FHA 203(k) Loans Work
FHA Construction
Borrowers need to own the land you’ll be building the home on, or use the loan proceeds to buy it. But it is important to note that there are specific areas which the FHA will not approve a construction loan for. FHA construction loan qualifications don’t allow you to build a home on land if it’s:
- Near a gas or oil well
- Near an airport
- Located in an area prone to floods
- A credit score of at least 580
- A debt-to-income (DTI) ratio of no more than 43%
- A 3.5% down payment for a HUD-approved project
- A 10% down payment if the project is not HUD-approved
- A loan amount that doesn’t exceed area FHA loan limits
FHA construction loan guidelines require borrowers to work with a licensed contractor. The contractor may have to provide documentation to confirm they have the proper licensing and insurance before a loan is approved.
Your lender will order an appraisal to confirm the building and materials meet FHA’s minimum property standards. This appraisal is required before loan approval.
As work is completed, the builder will be paid on the schedule you set before closing, with your written authorization.
Once your home is finished and ready to live in, the lender closes out your construction loan and converts it to a permanent mortgage within 60 days of the construction loan’s closing.
FHA 203(k) rehabilitation loan
The FHA 203(k) program allows borrowers to make minor repairs (projects must total $5,000 at minimum) or major renovations to an existing home. Unlike the FHA Construction loan, this loan can be used on an existing property that is in need of some TLC.
There are actually two FHA 203(k) options: limited and standard.
- Limited 203(k) loans. For remodeling projects with a price tag of $35,000 or less, you can make improvements to a one- to four-unit home. For example, you can replace a leaky roof, install new carpet or put a coat of fresh paint on your home’s inside.
- Standard 203(k) loans. The standard 203(k) program allows you to tackle bigger renovations on a home you’re buying or refinancing. You can take on a broader range of home improvement projects, such as:
- Replacing the plumbing in an older home
- Making a home wheelchair accessible
- Altering the layout or structure
- Adding or enhancing landscaping
USDA Construction Loans
Like a traditional USDA loan, covered in our government loan section, borrowers borrow from a traditional lender, and the USDA backs the loan. The only difference between the two is that while a typical USDA loan allows a borrower to buy an existing home, a USDA construction loan actually allows borrowers to finance new construction.
USDA Construction Loans come with plenty of perks, such as the no down payment requirement. Contact Capital Mortgage Today to learn more!
How Do You Qualify For A USDA New Construction Loan?
It is always true that government-backed loans have more requirements than conventional mortgages.
The USDA construction loan is, unfortunately, no exception. There’s a long list of requirements borrowers must meet to qualify for this type of USDA Loan:
- Property must in a USDA-approved area
- Property must be the primary residence
- USDA-approved contractor
- New construction warranty from the builder
- A minimum credit score of 640
- A debt-to-income ratio of no more than 41%
- Cannot exceed the state’s USDA income limit
- Not experienced bankruptcy for at least 2 years
How Do USDA Construction Loans Work?
Construction loans typically require that borrowers take out two separate loans. First, they borrow a construction loan to finance the build of their new home. After the construction is complete, the borrowers will close on their mortgage.
The USDA construction loan simplifies that process through a construction-to-permanent loan, also known as a single close loan.
The process combines a construction loan and a traditional USDA mortgage into a single loan. Borrowers have just one mortgage closing before construction begins. Once construction is finished, borrowers are left with a 30-year fixed-rate USDA loan.
The Pros Of A USDA Construction Loan
USDA construction loans have several benefits. First and foremost, a USDA construction loan allows borrowers to build the exact home they want, rather than fight the current market.
Another benefit of a USDA construction loan is that just one loan is taken out for the property, construction, and finished home. This saves money by only paying closing costs once. Borrowers also aren’t required to make payments during the building process!
Finally, the single-close loan ensures that borrowers only have to qualify for one loan and that an unexpected change in their finances doesn’t hurt their prospects of closing on the second loan.
The Cons Of A USDA Construction Loan
First, it is important to note that these loans may cost more in the long run than other types of mortgages.
USDA construction loans also often carry a higher interest rate than other loan products.
Luckily, borrowers may be able to lower that interest rate over time, such as a USDA streamline refinance.
There aren’t too many cons of a USDA construction loan. Contact us today to learn more about these exciting loan opportunities.
Top 10 Reasons to Use Capital Mortgage Services
- Capital Mortgage Services is a Mortgage Banking Firm, not a Broker
- Approval in Minutes
- FHA Direct Endorsement Lender
- Table Funding
- Best Service in Town
- Electronic Access to Current Market Conditions
- Home Owned and Operated
- Lowest Rates in Town
- Credit Freedom
- “We Can” Attitude
At Capital Mortgage Services, we’re happy to be a part of your American dream.
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Siwell, Inc. dba Capital Mortgage Services NMLS 149169
Licensed by the Department of Business Oversight under the California Residential Lending Act
MORTGAGE BANKER DISCLOSURE
Residential Mortgage Loan Originator: Siwell, Inc. dba Capital Mortgage Services
Organization NMLS ID: 149169
Residential Mortgage Loan Officer Royce Lewis NMLS ID: 151122
Residential Mortgage Loan Officer Linda Lewis NMLS ID: 151120
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FOR VIRGINIA BORROWERS, TOTAL FINANCE CHARGES OVER THE LIFE OF THE LOAN MAY INCREASE IF APPLICABLE.