Renovation Loan Options: HELOC vs. 203k Loan

203k Loan OptionsMany of today’s homeowners are familiar with the home equity line of credit (HELOC) which is offered by many banks as an option for financing home improvements. What some homeowners do not know is that there is a more efficient way to finance your home improvements; the FHA (Federal Housing Administration) and their 203k loan program.

A HELOC is based on the amount of equity someone has in their home. This poses a problem for many homeowners who lack equity; limiting the funds for the needed or desired improvements. Additionally, it acts as a second mortgage which can create problems down the road should a homeowner want to refinance to a lower interest rate. So, while, for a long time, this was the best option when looking to finance your projects at home that may not be the case anymore, thanks to the 203k Loan. The 203k can be used to purchase a home, of course, but when used as a refinance can provide funds for home improvements. Unlike the HELOC the amount funded is based on the future value of the home, after the improvements have been made; meaning for most, the financed amount is more than if it were based on your current equity in your home.

Another difference you will see with the HELOC vs. 203k Loan is that a home equity line of credit allows you to do the work yourself at your own speed whereas the 203k does not allow for DIY style work. By not allowing for “do it yourself” improvements, the projects are more likely to be completed within definite time period by a professional remodeler. This offers protection for the mortgage and for the homeowner. At the end of the day, the owner of the home is doing these improvements to increase the home’s value and enjoy it more fully. If the improvement projects aren’t completed or don’t meet industry standards, it will likely lead to more headache for the homeowner and a lower home value.

A 203k Loan is a wonderful option for those wanting to fix up their existing home; even if nothing is broke and you just want improvements! Don’t put off those projects any longer, waiting to build up equity for that HELOC, instead give us a call at Stockton Mortgage and speak to a renovation specialist in your area. Get in touch today 1.888.914.2276

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