Renovation Loans in NJ
Renovation loans in NJ have always existed under the Federal Housing Administration (FHA) home loan 203(k) program. They have increased in popularity following Hurricane Sandy in October, 2012.
Renovations loans in NJ fall under the 203(k) Rehabilitation Mortgage Insurance Program, which enables homeowners to include the costs of home repairs on their primary home into a financing program.
This unique type of financing allows home buyers and homeowners the opportunity to finance the purchase of a home or the refinancing of their existing home, plus the cost of renovations through a single mortgage.
The 203(k) renovation loans in NJ are helpful to homeowners because they simplify the process of renovating a home and, in many cases, drastically reduce the cost associated with borrowing money. Traditionally, the alternative type of renovation loan in NJ is a construction loan, a more complicated process by which the homeowner has a high interest rate with a shorter repayment period, and often involving a balloon payment.
By contrast, 203(k) homeowner loans help homeowners because they carry a longer term fixed or variable rate that encompasses both the home purchase or refinance as well as the renovation.
The obvious benefit to the homeowner is a savings in time, money, and hassle. The advantage to the lender, because the loans are backed and insured by the FHA, is that the loan is guaranteed even though the home, at the time of underwriting, may be in a state of disrepair and not afford adequate collateral.
These types of renovation loans in NJ have several eligibility requirements, which are helpful for homeowners to understand. Homeowners who do their own research may be able to determine for themselves whether they are eligible, but they are usually better served by enlisting the expertise of a lender that specializes in renovation loans in NJ.
The first eligibility requirement to 203(k) renovation loans in NJ is that the home receiving the financing must be at least one year old.
The second eligibility requirement of the FHA 203(k) loan program is that, after the appropriate portion of the money is used to pay the seller, if a purchase, or the existing mortgage holder, if a home refinance, a portion of the remaining money is put into a secure escrow account until renovations are complete.
The third requirement is that the cost of the renovation must exceed $5,000 and the total value of the home, including property, must be within the FHA-regulated threshold for the particular area. Homeowners can check the FHA limits on the U.S. Department of Housing and Urban Development (HUD) website.
The value of the total property in a given area is determined by two FHA methods. The first is the pre-renovation property value plus the total cost of renovation. The second is 110% of the property’s total value after renovation. The FHA limit is whichever of these two calculations is lower.
Again, if the total value of renovations exceeds $5,000, and provided that the other requirements are met, homeowners are eligible for these types of renovation loans in NJ. On the higher end, complete renovations may also be eligible as long as the existing foundation is in place. This is why many homeowners in the area who have had their homes destroyed by Superstorm Sandy have chosen to demolish their homes and leave the foundation, as long as the foundation is intact.
To determine whether your foundation is structurally sound, it is recommended that you or your contractor engage the services of an engineer who can come to your property and give you a detailed survey. Many times forensic engineers are able to see things that the untrained eye, even that of an experienced contractor, may not be able to see. Obviously the last thing you want to do is spend the money to build your house on a shaky foundation. Though you might be tempted to leave a foundation that is less than optimal, in order to get financing in the short term, it’s likely not a good long-term decision for anyone involved.
From a contractors end, 203(k) renovation loans in NJ are attractive because they provide for guaranteed payment to the contractor. Though usually the contractor will have to come out of pocket to begin the project because the money is held in secure escrow, he can be confident with the knowledge that payment is guaranteed. Generally, the more experienced contracting firms are the ones who get involved with FHA 203(k) loans because they have the cash to lay out for the first phase of the project, including materials and labor.
Additionally, experienced contractors who are smart have built relationships with local lenders of these renovation loans in NJ so they can be one of the first ones called when there is a job suitable for their capabilities.
Examples of the types of renovations that fall under the 203(k) loan program include are below.
Renovation Loans in NJ Apply To
- Mold remediation and elimination of other hazards
- External repairs such as roofing, siding, and paving
- Plumbing, including septic systems and wells
- Replacing and updating floors
- Landscape work and grounds improvements
- ADA-compliant accessibility features
- Energy conservation improvements, including heating systems and solar energy systems
- Home rebuilding (as long as the existing foundation is in place)
That is an incomplete list, but it gives you an idea of the various types of repairs that are eligible with renovation loans in NJ.
Jersey Shore homeowners should contact contractors in Monmouth County and contractors in Ocean County top ask about their eligibility under the loan program. The experienced contractors should have a good idea and will be able to point you in the right direction. If you do not have any luck with that, contact a local trusted lender that specializes in renovation loans in NJ.
Half the battle is being equipped with all of the information out there so you can make the best decision possible. Currently, there is a lot of information out there and it’s difficult to discern what you need to know and what you don’t. Many homeowners try to do it themselves, but many times they would be better served by enlisting the help of a professional who works with renovation loans in NJ on a weekly basis.