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Financing Home Improvements

Affording home improvements can be challenging. There are times when you choose to make a home improvement because you want to see some changes in your home. Then there are times that you have to make a home improvement because of a damaged structure or broken appliance. Everyone prefers the first option, but sometimes the second option occurs and homeowners are stuck in a predicament. Without finances available, what is a homeowner supposed to do? Thankfully, there are options available. Through the Department of Housing and Urban Development (HUD), you may be able to afford the home improvements you need to make.

The HUD approves certain lenders by insuring them, enabling the lenders to provide lower rates for homebuyers. Specific programs available for home improvements due to the HUD include: the Property Improvement Loan Insurance Title 1 program (FHA Title 1), the 203(k) Rehabilitation Mortgage Insurance loan, and the Streamlined 203(k) loan.

  • FHA Title 1.

    This program is used for all different types of home improvements that will increase the livability and functionality of the home. Examples include fire safety measures, a new water heater, and installing new flooring. For a single family home, $25,000 is the maximum amount that can be borrowed. The loan is a fix-rate loan, with a maximum duration of 20 years. To be approved for the program, a homeowner must go through an HUD approved lender. If a homeowner chooses to borrow more than $7,500, the home must be used as collateral if the loan cannot be paid off.

  • FHA 203(k) loan.

    This loan is used for homeowners who are seeking to do a major renovation project. Through one mortgage, an individual can finance both the purchase of a home and its renovation or the refinancing and renovation of an already owned home. The mortgage is either a fixed rate or adjustable rate loan and is designed to last a long period of time. The home must have been constructed at least one year prior to the application. The renovation project must cost more than $5,000, with a maximum equivalent to the value of the property (the cheaper of: 110% of the value of the property once the renovations are completed or the value of the property and the total cost of the renovations). However, the amount has to fit the FH mortgage limits. In San Diego county, one family is limited to a maximum mortgage of $562,350. Similar to the FHA Title 1, the borrower must apply through a lender that has been approved by the HUD.

  • Streamlined 203(k) loan.

    If an individual does not need to do extensive repairs, another option is the streamlined 203(k) loan. Unlike with the 203(k) Rehabilitation Mortgage Insurance loan, this loan has no minimum, but has a maximum of $35,000. With this mortgage, a homeowner and homebuyer can finance renovations. For a homeowner, the loan can be used to make the home more comfortable for themselves or more marketable for potential buyers. If purchasing a home in need of repairs, a homebuyer can use this loan to prep the home before they move in. Examples of different renovation projects this loan covers includes: remodeling the bathroom, installing hardwood floors, or painting the exterior. With this loan, a document has to be prepared with a list of each of the renovations desired and their cost.

Being approved for these loans is a process. Similarly to the process you have to go through to be approved for any type of loan, you are going to have to provide information to the lender that ensures them that you are financially stable. The lender is going to want information about your credit, employment history, and cash reserve. And, in addition to the typical loan requirements, you will also have to make sure that the type of home that you own and the renovation that you want conducted are both eligible for these programs. Having an inspection done on the property can help your situation, as this will provide a professional report on what is wrong with the property. If you want to make a luxury improvement, unfortunately none of these programs are going to help you.

The HUD programs are a great resource when the time comes for a home improvement. Renovations can be difficult to finance. With these three options, hopefully you are able to find a program that will work for you and your situation.

Contact Paul Chunyk

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