This is the second post in a blog series on the FHA home improvement loan, how it works, and which types of properties qualify for this type of financing. You can read Part 1 here.
FHA Home Improvement Loan – What’s The Process?
With this type of financing, the bank loans you an extra amount of money that’s wrapped into your home loan, and you’re able to put it toward the cost of renovating your fixer-upper property. The way this works is that after you go under contract to purchase your home, the FHA sends out their appraiser to do their inspection. The FHA appraiser analyzes the current market value of the fixer-upper property and compares it to what the property would be worth after it had been renovated. This is called the after-repaired value, or after-renovated value (ARV). They’re able to figure this out based on what remodeled homes in the subdivision have been selling for lately, and they base the amount of the renovation part of your FHA home improvement loan on this ratio.
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