Single-Close Renovation Financing
Financing for Remodeling and Repairs
Retiro Financial offers the widest range of options for purchasing a property and including repairs and renovation funds as part of the transaction or for renovation projects on a currently-owned property.
For loans secured by properties that will appraise significantly higher than the current value plus the cost of improvements once the project is completed, our Texas 2-Step Renovation Program may be the best option. You can learn about that program here.
Where the contemplated renovation will not increase the value of the property by more than the cost of the improvements, a better option is likely one of the following renovation loan programs.
FHA 203(k)
For loan amounts less than the FHA loan limits (between $498,259 and $571,550, depending on property location) an FHA 203(k) permits a buyer to acquire a property and finance the contemplated renovations in a single transaction. The loan amount is limited to 96.5% of the acquisition cost plus cost of improvements or appraised value, whichever is less for buyers/borrowers with a median credit score of 580 or higher.
The loan is subject to the FHA requirement of mortgage insurance and to FHA maximum loan limits for the county in which the property is located.
Fannie Mae HomeStyle and Freddie Mac Choice Renovation Programs
The Fannie Mae and Freddie Mac renovation programs offer a similar option for buying a property and making repairs or remodeling the property. The maximum loan amount in Texas is $766,550 with a minimum down payment on purchases of 5%, or 3% for qualifying first-time homebuyers. The program is also available for currently-owned properties up to a 95% loan-to-value ratio.
The following Questions and Answers will answer many of the questions you have about these conventional renovation loan programs.
Q1. Must a property be habitable at the time of closing?
No, Retiro Financial does not require the property to be habitable at the time of closing and when the property is not habitable, the buyer/borrower may finance up to six months of principal, interest, tax, and insurance payments to cover these costs while the home repairs or renovation are being completed.
Q2. Is a contingency reserve required?
Yes. A contingency reserve equal to 10% of the total costs of the repairs and renovation work must be established to cover required unforeseen repairs or deficiencies that are discovered during the renovation. If the utilities are not on at the time of the initial inspection, a contingency reserve of up to 15% of the contemplated cost of improvements might be required.
Q3. Are “tear downs” allowed?
No. This program is not available to demolition of an existing property and construction of a new home. However, this type of project would qualify for our Texas 2-Step New Construction program.
Q4. Can the loan be used to pay off existing liens or assessments?
No. Funds cannot be used to pay off existing debt or special assessments.
Q5. Is the Retiro Financial Renovation Program available on a manufactured housing property?
Yes. Manufactured housing is eligible renovation financing, up to the lesser of 50% of the as-completed value or $50,000. The manufactured home must meet the applicable agency underwriting guidelines for manufactured housing.
Q6. Can an accessory unit be detached from the primary dwelling?
Yes. An accessory unit may be detached from the primary dwelling. All improvements related to accessory units must be made in compliance with local and state codes and statutes and must otherwise conform to agency guidelines.
Q7. Can the financing be used to build another residential dwelling on the property parcel?
No. Funds from this renovation program may not be used to construct another residential dwelling on the property.
Q8. Can landscaping costs be covered?
Yes. Landscaping can be included in the renovation project provided that they are permanently affixed to the property.
Q9. Is there a limit to the cost of the improvements to the property?
The cost of improvements included in the renovation project cannot exceed 75% of the appraised value of the completed project.
Q10. Is there a limit to the permitted duration of the renovation work?
Yes. The renovation work must be completed within 9 months of the closing date of the renovation loan.
Q11. Is homeownership education required for mortgage qualification?
For purchase transactions with LTV, CLTV, or HCLTV > 95%, if ALL occupying buyer/borrowers are first-time homebuyers, then at least one buyer/borrower is required to take homeownership education from a qualified provider*, regardless of the product chosen. Contact a Retiro Financial loan consultant for possible exceptions to this requirement.
Q12. Can the renovation program be used when the subject property is free and clear of mortgage liens?
Yes, it is acceptable as a limited cash out refinance as long as the buyer/borrower does not get any money back at the time of closing, as stated in the guidelines.
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