If I'm approved for a $300,000 mortgage, but end up buying a home for $100,000 can I use the remainder of that pre-approved balance to do home renovations?
Would I need a second loan for the renovation budget, or would I have to pay out of pocket for those expenses?
Unfortunately it's not that easy. Lenders will generally only allow you to borrow the amount of the purchase price or the appraised value, whichever is lower. There is an FHA program built for Rehabilitating a home called a FHA 203(K). That program can be time consuming however because you need a break down of repairs and improvements to be made by a licensed contractor and it must be approved by the lender before they give the ok. And even then, not all of the repairs may be approved or covered under the loan. You will then need the appraiser to to appraise the before value and the value after the proposed improvements and that new value must make sense to the lender in order to get final approval. It's possible, but it does take time and effort. Many lenders don't like to do them for that reason. | 01.27.16 @ 17:42