Mortgage Magic: How Renovation Loans Can Help You Stop Hating Your Avocado Bathroom

What Is 203K Or Homestyle Renovation Loan- And How Can I Qualify?

Dreaming of transforming that fixer-upper into your dream home but worried about financing? This eye-opening episode breaks down the powerful financial tools that can make your renovation dreams affordable and potentially profitable.

Jeff Best, drawing from his unique expertise as both a general contractor and former mortgage banker, demystifies renovation financing options that most homeowners don't know exist. We explore the game-changing difference between FHA 203k loans and Fannie Mae HomeStyle renovation loans, revealing how these specialized mortgages allow you to borrow against your home's future value after improvements – potentially building substantial equity from day one.

For those with lower credit scores or smaller down payments, we detail how FHA 203k loans offer accessibility with minimum credit requirements around 620 and down payments as low as 3.5%. Meanwhile, homeowners with stronger financial profiles might prefer the flexibility of HomeStyle loans, which accommodate luxury upgrades like high-end finishes and swimming pools. Both options cover essentials like kitchen and bathroom remodels, roofing, HVAC, room additions, and more.

Beyond just explaining qualification requirements, Jeff shares crucial insider knowledge about the renovation loan process. You'll learn why finding the right contractor and lender experienced with these specific loans is essential, how the draw schedule affects your project timeline, and why budgeting for contingencies can save your renovation from disaster. His practical advice helps you avoid common pitfalls like underestimating approval times, miscommunicating with lenders, or attempting to live through major renovations.

Ready to transform that outdated kitchen or finally replace that avocado green bathroom? Call us at 469-831-5620 or visit Remodelcontracting.net for a free consultation. Your dream home might be more affordable than you think – and it could be the one you're already living in.

To learn more about Remodel Contracting visit:
https://www.RemodelContracting.net
Remodel Contracting
801 Alpha Rd, Ste 133
Richardson, TX 75081
469-831-5620

Episode Transcript

Speaker 1 (00:04):
Welcome to the Remodel Contracting Podcast,
where outdated spaces meet theirmodern makeover destiny.
Hosted by Jeff Bass, generalcontractor, home renovation
expert and guy who firmlybelieves your avocado green
bathroom has gotta go.
Based in the DFW Metro, remodelContracting is here to help you
level up your living spaceBecause, hey, you updated your

(00:27):
wardrobe, now it's time toupdate your home.
Expect more, live better.
Let's remodel.

Speaker 2 (00:41):
How can you turn fixer-uppers into dream homes
with less financial headache?
Jeff Best explains the basicsof renovation financing and who
these loans are for.
Welcome back everyone.
I'm Sofia Yvette, co-host andproducer, back in the studio
today with general contractorand home renovation expert, jeff
Best.

(01:01):
Jeff, how are you today?
It's so great to have you back.

Speaker 3 (01:05):
Good to see you, Sofia.
Very happy to be here today.

Speaker 2 (01:09):
Amazing.
I am so glad we're getting intothis today.
Financing can feel overwhelming, but these options might be a
game changer for folks ready torenovate.
So, jeff, what is a 203k loanor homeestyle renovation loan,
and how can I qualify?

Speaker 3 (01:25):
Awesome, great question.
Sophia, and you know, anytimeyou get into the mortgage or the
loan process it can be a littledaunting and it's not the
easiest thing to understand, butthere are options available to
you.
So homestyle, homestylerenovation loan and 203k loan
are similar, the differencesbeing a 203k loan is backed by

(01:49):
fha, that's federal housingadministration.
It's designed for people whowant to buy or refinance a home
and make renovations all rolledinto the same loan.
Okay, a home style loan is verysimilar, but it's backed by
Fannie Mae, which is aconventional loan.
So the main difference, being a203k is FHA and a home style is

(02:14):
conventional.
Now, both loans allow you toborrow on the future value of
the home after the repairs aredone, and that's a game changer
if you're buying a house thatneeds work or trying to unlock
equity in a property that youalready own.
Key differences are a 203k loanbeing FHA is more lenient on

(02:38):
credit, but it is morerestrictive on the types of
repairs you can do.
And an FHA loan, because it's asmaller down payment, also
requires mortgage insurance,which is an insurance that
protects the lender againstdefault.
That's different than yourhomeowner's insurance.
A homestyle loan or theconventional renovation loan

(03:00):
requires a higher credit scoreand a larger down payment.
Renovation loan requires ahigher credit score and a larger
down payment, but it's oftenmore flexible, especially for
upgrades like luxury finishes orpools and things like that.
Just to put it simply an FHAloan is better for lower credit
or a smaller down payment.
The conventional home style isideal if your credit and income

(03:21):
are strong and you want morefreedom with the renovation
scope.

Speaker 2 (03:27):
Okay Now, what types of projects do these loans cover
and what's off limits?

Speaker 3 (03:35):
That's great.
Well, you know, it covers quitea bit.
It covers more than it doesn'tcover.
So Homestyle both the 203ks andHomestyle loans cover kitchen
and bathroom remodels.
They cover roofing, hvac,plumbing, foundation works.
It's also, you know, thingsthat are utility of the house
too right, the bones of thehouse.
You can also get covered.
You can do a room addition,energy efficient upgrades and,

(03:59):
depending on the loan type andthis is more for the Homestyle
than the FHA and depending onthe loan type, and this is more
for the home style than the FHAbut you could also include on
the home style side, landscaping, appliances and then, depending
on the loan on either of them,you may even be able to include
accessibility improvements,whether those are for ADA
compliance or whether those arefor aging in place.

(04:22):
But do keep in mind DIYprojects.
Diy work is not allowed.
These loans require a generalcontractor and for any specific
trades would be required to belicensed and, in addition,
they're under a lot of scrutiny,right.
So you would have to have adetailed scope of work and

(04:46):
estimates as a part of the loanprocess.

Speaker 2 (04:51):
Now, how does the loan process coordinate with the
contractor's timeline andestimates?

Speaker 3 (04:58):
So well.
First, you need to hire yourcontractor early, because the
lender will require a detailedbid and timeline as a part of
the loan process.
And so this is where it can getkind of tricky, because if it's
a house that you're purchasingwhich, in my experience, most of
them are part of the purchaseprocess, so I'll lean a little

(05:18):
bit more on that for theinformation here.
So the lender collects yourbank statements, your W-2s, all
that good stuff for the approvalof the loan.
They're also just like that.
They're going to collect thescope of work and the estimate
from your contractor.
So your contractor is going tohave skin in the game before you

(05:38):
even get approved on your homepurchase.
So you've got to find the rightcontractor who has the ability
to take on the risk of thatcapital, because there's time
and money involved in preparingthose things.
You may need to.
Even, depending on yourcontractor and depending on your
lender, you may even need toget an architect or engineer

(05:59):
involved in writing up the plans.
That's going to really dependon your lender and your
contractor, on how well they'recommunicating and how good your
contractor is at conveying thescope of work that is to be done
.
But keep in mind.
The biggest benefit here isthat your loan is based on your
after repair value, so the homemust make sense as an investment

(06:22):
, even with the repairs included.
But the homeowner can reallycome out ahead here If you get
$1.50, $2 out of every dollaryou're putting into it.
That's built-in equity from dayone, so it's quite a good
program.

Speaker 2 (06:40):
Wow, Now are there specific pitfalls or delays
people should watch out for.

Speaker 3 (06:46):
Well, you need to be prepared going in and this is
where you need to find a lenderthat understands the both.
Whether it's two or three K orhomestead.
Your lender needs to understandthose loans so you don't get
too far down the road with thelender before you find out.
You don't even qualify Right.
So typically you're going toneed to find out.
You know, for a 203k, fha isgoing to require at least a 620

(07:07):
credit score, but they onlyrequire as little as three and a
half percent down For ahomestyle loan.
Typically and this is going todepend on the lender but
typically a homestyleconventional loan is going to
require at least a 680 creditscore and you're going to
require at least 5% down and inmost cases it's going to be a
lot more than that, especiallyon the conventional side.
As far as required down payment.
But remember, we're going to beworking with as completed value

(07:32):
.
So if you get $1.52 in valueout of every dollar of the
improvements, then that couldhelp to give you more equity in
addition to your down payment,which could help them help the
loan process be a little faster.
So, for example, let's say wehave a project done and you're

(07:54):
going to.
The appraiser says hey, you'regoing to put a hundred thousand
into this property, but it'sgoing to increase the value of
the property by 125,000.
Well, that $25,000 now istheoretically just like a down
payment, so it could reduce yourcash required at closing as
well.
Again, these are all going tobe very specific with your

(08:15):
lender, and your lender and yourcontractor both have to be very
familiar with doing these typesof loans, and you want to find
that out upfront before you getstarted.
Like Me, for example, prior tobeing a contractor, I was a
mortgage banker for over adecade, so this is something I'm
familiar with.
On both sides of the coin, notevery contractor is going to be

(08:38):
familiar with them and it's upto them to be honest with you
and let you know whether it'ssomething that they can do or
not, as well as the lender.
And I'll tell you I think wetalked a little bit about common
mistakes to avoid.
So don't assume any contractorcan handle a renovation loan.
Don't assume any lender canhandle a renovation loan.
Don't underestimate the timethat it takes to get approvals

(09:00):
and draw schedules.
So that's another thing.
Also, your contractor is goingto have to be able to pretty
much he's going to be capitalfunding your project as it goes
along, because putting in thedraw schedules, you're going to
have time involved from doingthe work to putting in the draw
request, then receiving the drawrequest, so your project

(09:21):
doesn't go in spurts work, wait,work, wait, work.
It's going to be better if yourcontractor can afford basically
to capital fund your project asyou go along and then he's
getting reimbursed as a projectgoes along.
That's going to help it to gofaster.
So don't underestimate the timeit takes to get approvals, don't
underestimate the time it takesto get the draw schedules and,

(09:44):
of course, always budget forcontingencies 10, 15% for
contingencies.
Make sure you have goodcommunication with your, make
sure your contractor has goodcommunication with your lender,
because your lender is going tobe coming out and inspecting the
project as well.
They're not just going to keeppaying you and taking your word
for it that the work's beingdone.
And, of course, if you aredoing a project in your own home

(10:06):
, just like any major project,don't expect to live in the home
during a full renovation,especially if it's a 203k,
because they're usually prettyintensive projects.
So just to wrap up a 203k orhome-style loan can be a very
powerful tool for turning a notperfect home into a perfect fit,
but it takes the right peopleand it takes a little patience.

(10:27):
If you are considering one ofthese, talk to a lender early,
get a contractor involved and beready for a more intrusive
hands-on experience than atraditional mortgage.

Speaker 2 (10:43):
Wow, thank you so much for breaking that down for
us today, jeff.
We'll see you next time onRemodel Contracting Podcast,
helping DFW dream big and buildsmart.
Catch you next time, jeff.

Speaker 3 (10:57):
Thank you, Sophia.

Speaker 1 (11:02):
That's a wrap for this episode of remodel
contracting podcast.
Ready to kick that 90s kitchento the curb?
For a free in-home consultation, call 469-831-5620 or visit
remodelcontractingnet.
Expect more, because your homedeserves better and, honestly,

(11:23):
so do you.