The City of Charlottesville is comprised of eclectic neighborhoods in/near the Downtown Mall. If you want to purchase in this area, you may have noticed that the neighborhoods range from brand new subdivisions to some historic areas. What if you like the neighborhood, however, the home needs updating/repairs/energy efficient upgrades?
If you want to buy one of these homes and don’t have the money to make changes, there are loans that can help. For the majority of buyers the FHA renovation loan works well. This loan allows a down payment of as little as 3.5% of the purchase price + cost of renovation. For example, purchase price is $200,000 and the cost of renovations is $20,000, the down payment would be $220,000 x 3.5% = $7,700.
There are two types of FHA renovation loans (also known as 203K), the streamline and full consultant. The type and cost of renovations will determine which loan 203K product will work best. The drawback with FHA 203K is that it only allows financing for primary residences (either purchase or refinance). If you have more money to put down, or are purchasing a second home or investment property to renovate, you will need to use the HomeStyle program. The HomeStyle renovation program requires as little as 5% down payment for a primary residence purchase.
Since these products are lending on future value, the interest rate is going to be slightly higher than a regular conventional loan. Also, the closing costs will be higher as there may be needs for consultants, updated title work and inspections. Overall these loans will help you make the improvements you want sooner versus later.
Make sure you work with a lender who has experience with these types of loans as there are more nuances to these than traditional purchases.