An open-end mortgage differs from most conventional mortgages in that conventional mortgages do not ordinarily provide funds in excess of those needed to purchase the home, even if the funds are used to make a home livable. If you can’t get an open-end mortgage, there are other financing options available. Let’s take a look at some alternatives to open-end loans. With a Fannie Mae HomeStyle Loan, the money to pay for the home is distributed at closing. In order to access additional funds for home renovations, an approved contractor must submit their plans to access the “draw.” After the work is completed, the contractor receives the funds for the home improvements.Fannie Mae HomeStyle Loan
The advantage of a HomeStyle loan is that it limits fraud, but it can be more tedious than taking out an open-end mortgage. Rocket Mortgage does not offer Fannie Mae HomeStyle Renovation Loans.
FHA 203(k) Loan
The Federal Housing Administration (FHA) doesn’t offer open-end mortgages. However, when a home buyer uses an FHA loan to buy a home in need of repair, they can also get an FHA 203(k) loan to pay for repairs and then combine both loans into one affordable monthly payment.
The FHA 203(k) loan has more flexible borrower requirements than other types of home loans. This can be ideal for home buyers with less-than-perfect credit or limited funds for a down payment.
VA Renovation Loan
Service members of the U.S. Armed Forces and Reserves and qualifying surviving spouses who are eligible for a Department of Veterans Affairs (VA) loan also have access to a VA renovation loan. This loan can be used to buy and rehabilitate a house that might require some home improvements or repairs.
VA renovation loans have the same benefits and borrower requirements as traditional VA loans, including a 0% down payment requirement, a minimum 620 credit score and a certificate of eligibility (COE).
USDA Section 5 Home Repair Program
When you take out a USDA loan, the USDA also offers renovation loans. For example, USDA borrowers can take advantage of the USDA’s Section 504 Home Repair Program. This program is designed to upgrade, repair or modernize the single-family homes of qualified borrowers.
A Section 504 Home Repair Loan can be used to fix or replace important features in a home, including the foundation, septic system and insulation. It can also be used to finance projects that remove safety or health hazards from the residence.
It’s important to note that Rocket Mortgage does not offer any of the above mentioned renovation loans.
