This post is for you home shoppers and/or investors who found a great house that needs some work, but you don’t have the cash for both the needed repairs and for the down payment up front. It’s also for you if you found a great fixer-upper opportunity, but you can’t get conventional financing because of the current condition of the home. And for fix-and-flip investors looking for some help financing the repairs. If you’re any of these three situations, or know somebody who is, read on.

renovation loan

The challenge.

Nobody’s home budget is unlimited. Buying and then repairing a fixer-upper is a time-honored way for homebuyers to find bargains and get more value for the dollar.

But unless you’re sitting on a pile of cash and have nothing better to do with it, most off-the-shelf, garden-variety 30-year fixed mortgages won’t help you much. If you have a home that’s worth $600,000 now, but will be worth $750,000 after you make $100,000 worth of repairs, most basic, unimaginative bank lenders won’t lend you the money – even if it will add $30,000 of equity.

If you want to finance both the home and the repair costs, you need a lender who understands these kinds of these deals, and a mortgage professional who can connect you with the right kind of loan.

Note: For these loans to work, the home has to be structurally sound. These loans aren’t designed for tear-downs or new construction. If you need to finance new construction or completely rehab a home, call us for details.

Owner-occupied homes

If you’re looking to buy a home to serve as your personal residence, rather than an investment property, you have several good options. Here are three of them:

FHA 203(k) loans.

The FHA 203(k) loan program is specifically designed for buyers on a limited budget.
You can finance up to 96.5 percent of the value of the property – keeping down payments low.
This loan is for owner-occupied homes only. You can’t use this option if you’re planning to use the home as an investment property.

To qualify, the home has to be at least a year old. You can’t do brand new construction with this loan.

The cost of the rehabilitation must be at least $5,000, but the total value of the property must still fall within the FHA limit, which in Hawaii is $726,525 for a single-family home as of 2019.

Authorized repair and improvement projects under this loan program include:

•structural alterations and reconstruction
•modernization and improvements to the home’s function
•elimination of health and safety hazards
•changes that improve appearance and eliminate obsolescence
•reconditioning or replacing plumbing; installing a well and/or septic system
•adding or replacing roofing, gutters, and downspouts
•adding or replacing floors and/or floor treatments
•major landscape work and site improvements
•enhancing accessibility for a disabled person
•making energy conservation improvements

HUD requires that properties financed under this program meet certain basic energy efficiency and structural standards.

The Fannie Mae HomeStyle Renovation Loan.

The Fannie Mae HomeStyle program is another great option for many Hawaii home buyers who want to finance both the cost of the home and the cost of planned repairs or improvements.

The HomeStyle program is extremely flexible: First, unlike the FHA 203(k) program, the HomeReady program is cleared for investment properties as well as owner-occupied homes. Furthermore, you can use loan proceeds for any repair or improvement you like, except for tear-downs and to put up an entire second home on the property.

Under the HomeStyle program, down payments on owner-occupied homes can be as low as 3 percent (20 percent for investment properties).

The financing of the purchase and the cost of the repairs/improvements is rolled into a single mortgage. Interest rates on the portion of the loan you use for the rehab are generally lower than you would get if you used a home equity loan to finance the same project – and certainly much cheaper than financing the renovation on a credit card!

Other features and advantages of the HomeReady program include:

•Low minimum FICO score of 620 (though you’ll have more choices and better terms at higher credit scores).
•15- or 30- year terms available.
•No 2nd mortgage required.
•Only one credit inquiry required for both the purchase and rehab portions.
•Just one approval needed.


•Expect to submit a construction plan and have a contractor picked out before you can close on the house.
•You can build accessory buildings detached from the main building, such as an in-law dwelling, but you can’t build a whole additional house on the property with a HomeStyle loan.

VA Renovation Loans.

If you’re a qualifying veteran, you may consider a VA Renovation loan. These loans cover up to $50,000 in renovations with a single application, bundled into the home loan.

•VA Renovation Loans have a couple of important advantages:
•100 percent financing of the entire post-renovation value of the home is available. That means if you have a $300,000 home, but after improvements the home is expected to be worth $350,000, you can borrow up to $350,000 with no down payment required.
•Cash-out refinancing is available for additional funds to make improvements to the home you already own. 100% Loan-to-Value is available so long as the VA guaranty and home’s equity will be at least 25% of the value.



Average house-flipping gross profit in 2018: $65,000.

There are still lots of opportunities for fix-and-flip investors here in Hawaii and across the country. The average gross profit on a fix-and-flip deal in 2018 was $65,000, according to ATTOM Data Solutions.

Most investors are looking for shorter terms, want to limit their payments until the home is sold. Lenders are eager to work with flippers, though these lenders aren’t necessarily the big banks. This market tends to be more specialized.

In past years, getting shorter-term financing for a home to include 100 percent of renovation costs was the purview of a few hard money lenders, who charged very high interest. Even then, investors had to put up 25 to 35 percent down, and could only finance a portion of projected renovation costs.

Today, it’s much easier to do, and lenders are very eager to do this kind of business.

Terms today are more investor-friendly than they’ve been in many years. For example, many of our clients qualify for:

•Financing of up to 85 percent of the home price. That is, the down payment would be just 15 percent.
•Financing of 100 percent of the renovation cost
•Interest-only payments for up to a year – keeping payments very low until you can complete the repairs and sell the property.
•No interest on renovation money you don’t use.

Generally, with renovation loans, you can expect to submit paperwork on your planned renovation, including written estimates from licensed contractors. Closing costs may be higher than on a straight mortgage.

Looking to finance a fixer-upper? Call Pacific Home Loans at (808) 891-0415
today and let’s start the process. Or apply online here.

We look forward to working with you!