For those looking to improve the value of their home, there are several home improvement loan options that you should consider. If you are an existing home owner, and are looking to finance a swimming pool, a new roof, or other addition to your home, then I would recommend checking out my other hub:

• Home Improvement Financing – this is a guide one your different options for a home improvement loan if you already own your home, are looking to add some much-needed repairs, and are looking for financing options.

However, many people are finding themselves in the following situation: they are looking at buying a home for the first time (being aided greatly by the $8,000 government credit), and are finding some great options with foreclosed homes. However, many of these homes have many much-needed repairs. Wouldn’t it be nice if you could add the cost of these repairs to the mortgage so you didn’t have to come up with an extra $20-$25,000 dollars to redo the roof, the carpet, or fix that wall with the three foot whole in the middle? Of course it would be very nice, and luckily you may have some options.

Here are a few options that home buyers have when looking to combine a home improvement loan into their original mortgage:

Section 203(k) mortgage:

The section 203(k) mortgage is perhaps the most well known option when it comes to home improvement loans for home buyers.   Essentially, these types of mortgages will cover the purchase costs of the home in addition to the costs of the home renovation.  There are some specific restrictions, however, so make sure you talk with your home renovation loan specialist to find out if what you are planning on doing qualifies (for examples, the home needs to be at least one year old, and the renovations must be $5,000 or more, and there is a cap amount for the loan).  

Here is an example:  Suppose you are looking to buy a home, at a cost of $100,000.  However, the home needs (or at least you would like) improvements that will cost about $15,000. 

With a Section 203(k) mortgage, your renovation lender will calculate the total mortgage value by calculating a number according to the following formulas, then choosing the lesser number:

1)      Adding the cost of the home ($100,000) to the cost of the renovations ($15,000), plus up to 6 months of worth of mortgage payments. 

2)      Adding the value of the home (post-renovation value is used) plus 10%.

As you can see, with a Section 203(k) mortgage, you have the option to get 100% financing that includes the cost of your home repairs. 

Fannie Mae’s HomeStyle Remodeler

Fannie Mae’s Homestyle Remodeler is one other way to combine your mortgage and your home remodeling/improvement loan into one financing.   One advantage over the 203(k) loan is that the cap limits can be higher with the homestyle remodeler loan, so this may be a good option for you if that benefits you and as long as you are adding on to the existing structures that are already attached to your property. 

Private Lender Options

Even if you don’t qualify for one of the federal program loans, you still may have an option to add your mortgage to your home improvement loan through a private lender, such as Wells Fargo, Bank of America, or some of the smaller regional banks or credit unions.