Similar to a 203(k) loan, the money for the renovation is held in escrow until the work is completed and inspected and is then released to the contractor. Once you’ve got that number, you can borrow up to 50% of that appraised value to do the renovation. You then have an appraiser determine what your home will be worth after the renovations. How it works: As with the 203(k) loan, you have to hire an approved contractor and submit a bid for the project with your loan paperwork. Another difference: There’s no limit to the kinds of renovations you can do, as long as everything is permanently affixed to the home and adds value. The HomeStyle loan is similar to the 203(k) loan, but it requires at least a 5% down payment. Although the interest rate can be fixed or adjustable, you can expect to pay a rate that’s about 1% higher than a standard loan, as well as private mortgage insurance for the life of the loan. Like traditional FHA loans, you can pay it back over 15 or 30 years. After the work is completed-the deadline is six months-an inspector visits to determine that it’s been done correctly, then the money is released to the contractor. Once the loan is approved, the money for the renovation is put into escrow. That appraisal must be in line with local comps-if it’s not, you could be required to scale back the reno you’re proposing. An appraiser reviews the home and the submitted bid, and appraises the estimated value of the home postrenovation. How it works: To qualify for a 203(k) loan, homeowners have to provide a bid from an approved contractor to make the upgrades they want with their loan paperwork.
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