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These Mortgages Pay for Home Renovations

(TNS)—Many people don’t realize that there are renovation loans that can help pay for your housing upgrades. Whether you need a new roof or your kitchen is outdated, there is a mortgage that’s right for your fixer-upper. Here are your options and what you should know about each one.

Government-Backed Home Renovation Loans
One of the best-known loans for home improvements, Fannie Mae’s HomeStyle Renovation loan allows borrowers to either buy a place that needs repairs or refinance their existing home loan to pay for improvements.

The HomeStyle loan is available from any Fannie Mae-approved lender, but there are qualification requirements:

  • For a primary residence, you must have a credit score of at least 620. You can check your credit score for free at myBankrate to see if you meet this criterion.
  • You have to make a down payment of at least 5 percent of the purchase price of the home.
  • A certified contractor must prepare and submit a cost estimate and details of the work to be done.

One advantage of a HomeStyle loan is that it’s just one loan; you don’t have to take out a loan for the mortgage and then another loan for home repairs. One loan reduces paperwork and closing costs.

Keep in mind that the money for the home improvements goes into a separate escrow account that’s used to pay the contractor directly. You don’t have access to those funds like you do with a home equity loan or a cash-out refinance.

“The nuance with the HomeStyle loan is that there’s a little less freedom for the customer because the funds are held in an escrow account,” says Eric Wilson, director of Operations at Better Mortgage.

The Federal Housing Administration (FHA) offers a home renovation loan called a 203(k). There’s typically a lower credit score requirement for this loan than there is for a HomeStyle loan, and a lower minimum down payment of 3.5 percent.

There are two types of FHA 203(k) loans: limited (formerly called streamline) and standard. A limited FHA 203(k) loan is designed for cosmetic improvements and is capped at $35,000. A standard FHA 203(k) loan can be used for extensive remodeling, but it requires you to hire a qualified 203(k) consultant to oversee every step of the work, from the plans to the finished product.

There’s security in having the consultant. Most people doing a major home improvement project hire a contractor on their own, notes Stuart Blend, regional sales manager for Planet Home Lending. With a standard 203(k) loan, the consultant is your project manager, assessing the cost, the plans and overseeing the work.

“When you take out that loan, that money rests with the lender. We’re holding those funds in escrow, and we’re making sure everything is done the way it’s supposed to be done,” Blend says.

Private Home Renovation Loans
Another way to finance your home renovation is by taking out a home equity loan, also known as a second mortgage. This is a one-time loan, so it’s not subject to fluctuating interest rates, and monthly payments remain the same for the loan term.

A similar loan is the home equity line of credit, or HELOC. It has a revolving balance and might be best for someone who has several large payments due over time, like with a big home improvement project.

With either option, you’re pledging your home as collateral, meaning if you don’t make your payments, the lender will end up owning your house. Alternatively, you can take out an unsecured personal loan to avoid putting up your home as collateral.

HomeStyle and FHA 203(k) loans have some advantages over home equity loans.

“The loan amount with either of these is based on the completed value and not the present value. A home equity loan is based on the current value,” says Gregg Harris, president of LenderCity Home Loans, a division of BBMC/Bridgeview Bank Group.

A cash-out refi allows homeowners to refinance their mortgage. This mortgage will be for a higher amount than the first one, and the homeowner gets the difference in cash. Like home equity loans and HELOCs, cash-out mortgages require homeowners to use their home as collateral, but if you’ve got a considerable amount of equity in your home, you might be able to find lower interest rates. Combine lower interest rates with the added home value derived from renovations, and you could save more in the long run.

You’ll need at least 20 percent equity in your home to qualify for cash-out refinancing. The total loan amount is limited to the available equity in your home. Credit score requirements vary per loan amount and value of your home, but generally start at 640.

How do you choose the best renovation loan?

“It really comes down to credit and eligibility,” Harris says.

An FHA 203(k) might be best for a borrower with so-so credit and little money to pay down, since borrowers can get a mortgage with only 3.5 percent down.

Consider how much you want to borrow and what it is you want to change. It can be hard to calculate the best home renovation mortgage for your needs, so work with a lender who has extensive knowledge of the different loans, advises Laurie Souza, national business development manager at Mortgage Network Inc. in the Boston area.

“Make sure you’re working with a lender that is well-versed with the details of the program,” she says.

©2018 Bankrate.com
Distributed by Tribune Content Agency, LLC

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Listing This Summer? The Best Investments to Make Outdoors

Are you listing this summer? Get your outdoors in shape—it can pay off.

According to National Association of REALTORS® (NAR) research, certain exterior improvements are likely to recoup at resale. Based on feedback from REALTORS®—who, through their experience, know what house hunters are ready to spend on—the best enhancements are lawn care, landscape maintenance and tree care, and installing an irrigation system. Landscape/lawn care pays for itself—generally 100 percent of the expense or more is recovered, according to the research—while irrigation has a promising ROI of 86 percent.

For homeowners not selling yet, exterior improvements can be satisfying in and of themselves. Assigning a “Joy Score” from one to 10, with 10 anteing up the most enjoyment, both a fire feature and an irrigation system earned 10s, followed by a new wood deck or water feature (both 9.8s), “statement landscaping” (9.7) and an “overall landscape upgrade” (9.6), the research shows.

“REALTORS® understand that a home’s first impression is its curb appeal, so when it comes time to sell, a well-manicured yard can be just as important as any indoor remodel,” says NAR President Elizabeth Mendenhall. “Even homeowners with no immediate plans to sell can gain more enjoyment and satisfaction from their home by taking on a project to revive their outdoor spaces.”

MORE: A Front Door, Flooring and Other ‘Happy’ Home Upgrades

Additionally, appearances matter beyond the residential space. Forty-three percent of REALTORS® have advised a commercial owner to improve the outside of the property, including lawn care, landscape management and an “overall landscape upgrade,” the research shows.

“It is not just homeowners that need to think about curb appeal when it comes time to sell; a beautiful exterior is just as important for commercial property owners,” Mendenhall said. “In fact, 81 percent of REALTORS® said they believe curb appeal is important in attracting a buyer.”

“This report validates that landscaping is an investment worth making, offering the immediate benefits of increased enjoyment of your property, as well as desirable long-term value that holds if or when it comes time to sell,” says Missy Henriksen, vice president, Public Affairs, at the National Association of Landscape Professionals (NALP), which collaborated with NAR on the report. “From lawn and tree care to installing a new fire or water feature or landscape lighting, there’s no shortage of opportunities to enhance your landscape and to reap the benefits these upgrades provide.”

For more information, please visit www.nar.realtor.

DeVita_Suzanne_60x60Suzanne De Vita is RISMedia’s online news editor. Email her your real estate news ideas at sdevita@rismedia.com. For the latest real estate news and trends, bookmark RISMedia.com.

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Gutters: What Material Is Best?

If you’re putting gutters on your home for the first time, or replacing your existing gutters, you may be surprised by just how many options there are. While there may be numerous options to choose from, it’s important to understand the various costs associated with this type of project before making a decision. In fact, the experts at Improvenet.com say the cost to install gutters and related components like downspouts can vary widely, with installation rates ranging from a minimum of $3 to more than $17 per linear foot.

While gutters protect the sides of the house from mud—preventing erosion, reducing water damage to the foundation, and keeping visitors from getting wet—guttering can demand more maintenance and cleaning, distract from the profile or design of a home, and be a big expense when constructing or remodeling.

According to Improvenet, the four top gutter material options are aluminum, vinyl, copper and stainless steel.

While the decision is often personal, Roselyn Bette at Medium.com loves and recommends copper, because over time it develops a special lining that protects from rust and other potentially harmful elements. She says copper prevents algae and fungi growth, so blockages, with their related cleaning and maintenance expenses, will be significantly reduced.

And, Bette says, copper gutters can last well over 100 years due to their remarkable durability.

Turning to other materials, doityourself.com points out a few important things to know about aluminum gutters. While relatively weather resistant compared to vinyl—and very lightweight—aluminum is less durable than steel or copper.

Aluminum gutters need to be maintained to avoid corrosion and dents, so cleaning them and caulking them regularly is important. Since aluminum expands and contracts with the temperature, they’re prone to cracks, which need to be repaired in order to avoid leaks.

When it comes to affordability, vinyl tops the list because it’s lightweight and easy to install. Additional benefits include the fact that its color won’t fade, chip or crack over time. While it’s a top choice for DIYers, vinyl can get brittle and snap in cold extremes, so it may not be the best option for homes in cold climates.

Steel ranks second when it comes to affordability; however, it’s important to note that it can rust in certain climates. Not only is it sturdy, but also it can hold a lot of weight, so sagging is less common.

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