Portland, Oregon Home Renovation Loan Options
Updated 05/2024
It’s true what they say: There’s no place like home. It is your soft place to land at the end of your day. It’s also likely your biggest financial investment, so knowing ways to make renovations and upgrades more affordable can make your home life even more comfortable.
Home renovation loans are here to help. With one, you can complete work on a home that might be in an ideal location but needs some TLC. You can also improve your current property by completing essential upgrades, building an addition, or renovating the home in ways that will improve your daily life. Loans help you accomplish these goals, eliminating the need to sell your current home or cross an appealing fixer-upper off your list.
This article discusses home renovation loan options available for Portlanders. You will learn that there are excellent local and federal government programs available. And before you start working on that home, be sure to check out our articles, Portland Home Sellers’ Guide: To Fix or Not to Fix? and How to Buy (and Remodel) a Fixer in Portland.
Portland’s Home Repair Loan Program
Portland’s Home Repair Loan Program (HRLP) offers an unbelievable 0% interest rate on loans up to $40,000 for Portland residents with moderate incomes who want to make home updates. The program’s purpose is to increase the 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.
The loan is only applicable for repairs that are critical to the health and safety of occupants. The home must also be within the Interstate Corridor and Lents Town Center Urban Renewal Areas.
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.
FHA 203(k) Home Renovation Purchase Loans
Federal Housing Authority (FHA) is a government-backed mortgage program that allows homebuyers to finance the purchase of a home or refinance a current mortgage with the costs of renovations, renovations, repairs, or remodeling included ($5,000 to $35,000). It is the world’s largest insurer of residential mortgages, with a long history dating back to 1934.
Requirements for approval aren’t directly rated to income, but the borrower must have:
A FICO® score of at least 580 = 3.5% down payment.
A FICO® score between 500 and 579 = 10% down payment.
A steady income and proof of employment.
MIP (Mortgage Insurance Premium).
A debt-to-Income Ratio < 43%.
The home used as the primary residence.
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 the purchase price and the added costs for renovation in one loan amount.
Fannie Mae is a government-sponsored entity that buys loans from banks. While this helps banks stay liquid to create more loans, Fannie Mae’s primary purpose is to help mid- to low-income borrowers, those considered “risky” by banks, complete re-builds and home renovations.
Here’s how it works. An approved contractor submits plans to the bank. Money is then dispersed to pay for the home at closing, but the contractor is only paid after the work and when inspections are completed by the bank. Therefore, this loan option streamlines the process for the borrower while helping 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.
Learn more about the Fannie Mae HomeStyle® Renovation Program here.
USDA Renovation Loans
There are two types of USDA loans for renovations:
Limited: This loan is designed for less extensive repairs and improvements, with a maximum payout of $35,000.
Full: This loan does not have a minimum or maximum amount, but it does follow the loan limits set by the Federal Housing Finance Agency (FHFA). Repairs offered in the Limited loan option also work for this option but is unique in that a HUD consultant must inspect the property, consult on repairs and costs, and manage the project, including providing a work write-up.
VA Rehab Loan
The VA renovation loans, aka VA rehab loans, provide a low-cost, no-down-payment option for buying and renovating a home, including some more challenging properties typically avoided by other lenders. Still, not all mortgage lenders offering VA loans offer VA renovation loans.
This loan is similar to the FHA 203(k) loan but requires no down payment and no mortgage insurance.
To learn more, visit the VA website.
Portland Down Payment Assistance Programs
Portland offers financial assistance to homeowners toward their downpayment, allowing them to buy a home and afford renovations.
Having help with a down payment is especially helpful in 2024. Today’s high-interest rates combined with ever-increasing home demand and prices can drain the money needed for renovations.
Learn more by checking out our article on Down Payment Assistance Programs for Homeowners (need LINK to latest article).
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. 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 when you need it up to a set max limit. HELOCs don’t typically have closing costs; when they do, they’re minimal. They also come with variable interest rates.
HELOCs often have a draw period (when you use the as-needed money) within the first 10 years and have low, interest-only payments. After that, you move into the repayment period and make principal plus interest payments until the payoff. Once you are in 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.
What’s the maximum loan amount on a HEL or a 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, 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 the equity you’ve gained by making payments, and 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.
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!
