Portland, Oregon Home Renovation Loan Options
Whether you’re buying your first home or you’ve been in your current home for several years, you know that it’s both a soft place to land at the end of your day, and it’s also likely your biggest financial investment.
What if you love your current home but you’ve outgrown it and want to do an addition? Or renovate to take care of some major updates and give it that new-home feel?
Or maybe you found your dream home in the perfect location, but it needs some work and you can’t begin to fathom where you’ll get the money to make it happen.
Before you think about selling your current home or crossing that home you just found off your list, keep reading. And check out our articles, Portland Home Sellers’ Guide: To Fix or Not to Fix? and How to Buy (and Remodel) a Fixer in Portland.
In this article, we discuss home renovation loan options for Portland home owners and buyers. There are some great government programs available—both locally and federally—but before we get to those, let’s look at some of the standard options available.
Home Equity Loan and Home Equity Line of Credit
Home Equity Loan (HEL)—A home equity loan functions somewhat like your first mortgage. With the HEL, you get a lump cash sum, usually with a fixed interest rate, and a second monthly mortgage payment. The term can vary from 5 to 30 years, and interest rates are way better than using a credit card. Currently, HEL rates are ranging between 4% and 6.5%. These types of loans usually have closing costs from 2%-5% of the loan value.
Home Equity Line of Credit (HELOC)—A home equity line of credit works like a credit card in that you borrow what you need as you need it, up to a set max limit. HELOCs don’t typically have closing costs (and if they do, they’re minimal). They also come with variable interest rates. Most often, HELOCs have a draw period (the time during which you use the as-needed money), which occurs within the first 10 years and have low, interest-only payments. After that, you move into the repayment period and start to make principal plus interest payments until pay off. Once into the repayment period, you can’t borrow any more money on the HELOC. This type of option also creates a second payment in addition to your mortgage payment. Interest rates on HELOCs are currently around 4%.
What’s the maximum loan amount on an HEL or an HELCO? This will all depend on the value of your home and how much you still owe on your first mortgage. Another factor is the percentage of the home’s value you can borrow against, determined by the lender. For instance, let’s imagine that your lender will let you borrow up to 80% of the value of your home. It’s currently worth $600,000 and you still owe $250,000 on your first mortgage. That means you may qualify to borrow an additional $230,000 in the form of a HEL or HELOC ($600,000 x 0.80 = $480,000 – $250,000 = $230,000).
Cash-Out Refinance Loan
Like the HEL and HELOC, a cash-out refinance (COR) allows you to draw money based on the value of your home, but here’s how it’s different. With a COR, you take out an entirely new mortgage on your home that’s more than the current remaining balance. That is, your lender will look at your mortgage balance, take into account equity you’ve gained by making payments, then grant you a loan higher than the balance of your current loan based on your earned equity. This new loan will pay off (replace) the current mortgage and give you some extra cash for renovations. So, in the end, you still only have one mortgage payment.
Going this route allows you to bypass less desirable options, like personal loans and credit cards, and not wind up with two payments attached to your home.
FHA 203(k) Home Renovation Purchase Loans
Federal Housing Authority (FHA) is a government-backed mortgage program that allows homebuyers to wrap in remodeling costs ($5,000 to $35,000) in their offer to purchase fixer properties.
Learn more about the FHA 203(k) renovation loan program.
Fannie Mae HomeStyle® Renovation Loan
Like the FHA 203(k), the Fannie Mae HomeStyle® Renovation Loan (FMHRL) lets you borrow both the purchase price of a home and the added costs for renovation, all in one loan amount.
Fannie Mae is a government-sponsored entity that buys loans from banks, and while this helps banks stay liquid so they can create more loans, Fannie Mae’s primary purpose is to help mid- to low-income borrowers, those considered “risky” by banks, take care of re-builds and home renovations.
Here’s how it works. An approved contractor submits plans to the bank. Money is dispersed to pay for the home at closing, but it isn’t until after the work and inspections are complete that the bank sends the money to the contractor. This set up streamlines the process for the borrower, and it also helps prevent fraud.
HomeStyle Renovation offers borrowers competitive rates, which may be lower than other renovation financing options, such as FHA’s 203K program, HELOC, or costly credit cards.
https://www.fanniemae.com/
Learn more about the Fannie Mae HomeStyle® Renovation Program here.
Portland’s Home Repair Loan Program
Portland’s Home Repair Loan Program (HRLP) offers an unbelievable 0% interest rate for a loan up to $40,000 for Portland residents with moderate incomes who want to do home updates. The purpose of the program is to increase safety and livability of homes by improving or replacing electrical wiring, leaks, inadequate heating systems, structural disrepair, and more. It can also help homeowners who have received a code violation.
Eligible locations are the Interstate Corridor and Lents Town Center Urban Renewal Areas.
To qualify, repairs must be critical to the health and safety of the owner occupants.
https://www.portland.gov/phb/home-repair-loan
Read about the HLRP, including eligibility requirements, loan process, how to apply, and more. Or contact Bev Keagbin, Housing Loan Coordinator at 503.823.3336 or Bev.Keagbine@portlandoregon.gov.
Need Help Finding a Lender or a Home?
We’re certain our top 1% Portland buyer’s team and our top 1% Portland seller’s team can help you, no matter your position on the buy/sell spectrum. Portland is full of charming fixers, as well as lovely homes that simply need updating—one of which may be the one you own right now. Whatever your needs, we can help you get the result you want. Get in touch today via the chat bot on our site or give us a call at 503-714-1111. We’d love to hear about your real estate plans!
