Fourteen months ago, Jackie and John McDonnell found the perfect home–a single-family residence plus coach house near Wrigley Field. Well, it wasn’t that perfect. There was no garage and the asphalt-shingle-sided coach house was dilapidated.
The McDonnells were trying to figure out how they could afford both the $385,000 property and $75,000 worth of renovations needed when their mortgage broker had an idea. He worked out a program of three separate loans–a first mortgage, a home equity loan and a federally insured property improvement loan–which gave the couple the money they needed when they needed it.
Construction took place last summer and fall. The basement was transformed into a two-car garage, a project that necessitated pouring a new concrete floor and raising the first floor, and the coach house was gutted.
“It was a great decision,” says John McDonnell. “We’ve enhanced the value of the home and have the convenience of two garage spaces for our cars. We’ve also improved the appearance of the coach house. It wasn’t the prettiest thing in the world and we had to stare at it through our back window.”
The couple has been able to increase their rental income, too.
Without the loan package, “we wouldn’t have done it,” says John. “I would have done a simple renovation on the coach house and not done the garage.”
“There is money all over the place,” says Ken Perlmutter of Perl Mortgage in Chicago, who arranged the package of loans for the McDonnells. “What is driving the current wealth of support products is that homes are so expensive. People are into remodeling their homes or buying homes that need rehabbing, and they need money to do it.”
If you’re contemplating buying a home that needs rehabbing or updating or if you’re looking for financing for your next improvement project at your current home, the following list will get you started. It’s not all-inclusive, however, so check with your county, village, community development organizations and local lenders as well. The terms and conditions of each program vary.
– Section 203(k) rehabilitation loans enable borrowers to buy and rehab a property with a single mortgage. These loans are authorized by the federal Department of Housing and Urban Development, insured by the Federal Housing Authority and obtained through approved lenders. Both fixed- and adjustable-rate mortgages, at prevailing market rates, are available. Borrowers can receive up to 95 percent of the improved value of the property but maximums vary according to location. In Chicago, the maximum is about $152,000. One- to four-unit properties are eligible. Telephone: 312-353-6236, ext. 2221.
– Title I Property Improvement Loans are also federally sanctioned but are for improvements only. FHA-approved lenders make loans of up to $25,000 for single-family homes and $60,000 for multiple-family dwellings. Applicants must prove they are creditworthy and can make monthly repayments. The maximum loan term is 20 years. Interest rates are fixed and based upon market rates. Telephone: 1-800-733-4663.
– The Home Improvement Mortgage Loan by the Federal National Mortgage Association (Fannie Mae) allows borrowers to receive money for both purchase and rehab in one package. Loans are granted by approved lenders for up to 90 percent of the property’s upgraded value. Most conventional single-family first mortgages currently purchased by the association, including 15- and 30-year fixed-rate and adjustable-rate mortgages, can be expanded to include rehabilitation costs. Programs are also available for those at low- to moderate-income levels and those who want to rehab only. Telephone: 1-800-7FANNIE.
– The City of Chicago’s Department of Housing offers a Single-Family Rehab Loan for the correction of building code-related issues. Borrowers must fall into low- to moderate-income categories or rent to those who do. Loan maximums are $50,000 for a single-family dwelling and $150,000 for a four-unit building. Terms are 5 to 15 years, depending upon the amount. Under certain circumstances, a portion of the loan may be forgivable. No interest is charged. Telephone: 312-747-8589.
– Also sponsored by the Chicago Department of Housing is the Emergency Housing Assistance Program. Forgivable loans are made to low-income owner-occupants of one- to four-unit buildings to repair hazardous and life-threatening conditions. From Nov. 1 to April 1, improvements are limited to the repair or replacement of heating units and plumbing systems. During the remaining months, improvements are limited to roofing, electrical, plumbing and carpentry repairs. Loan maximums range from $4,000 for single-family dwellings to $10,000 for four-unit buildings. If the property is sold within one year of assistance, the loan must be repaid. Telephone: 312-747-8696
– Chicago Home Improvement Program (CHIP), sponsored by Neighborhood Housing Services of Chicago, provides improvement and rehab financing in most city communities. Loans are made in amounts from $2,500 to $50,000 for buildings of one to six units and $7,500 per unit for buildings with between seven and 12 units. The money may be borrowed for up to 20 years. The current interest rate is 8.9 percent. Borrowers must have a combined annual family income of less than $56,280. They must also live on the property. Telephone: 1-800-773-CHIP.
– Chicago Family Housing Fund, sponsored by Neighborhood Housing Services of Chicago, offers financing for the acquisition and renovation of residential property by low- to moderate-income buyers in a single package. The package includes a 30-year fixed-rate first mortgage at market rates for 80 percent of the improved value plus a second mortgage at 5 percent interest for up to 15 years. Borrowers must occupy the property as their principal residence. Buildings with one to four units are eligible. Telephone: 312-738-2227, ext. 203, 206, 208 or 215.
– 3 Percent Interest Rehabilitation Loan, sponsored by the DuPage Community Development Commission, finances the correction of code violations and substandard living conditions for qualified low- and moderate-income homeowners in DuPage County and the City of St. Charles. Borrowers must prove they are unable to obtain funds through conventional channels. The program is limited to owner-occupied residences of no more than four units. The maximum loan term is 10 years and the maximum loan amount is $15,000. Telephone: 630-682-7543.
– Deferred Rehabilitation Loans are also granted by the DuPage Community Development Commission. Eligibility criteria are similar to the 3 percent loan described above but the maximum loan amount is $12,000. The loan need not be repaid until title to the rehabilitated property is transferred. At that time, the full amount is due. No interest is charged. Telephone: 630-682-7543.
– The Revolving Loan Fund Program from the Neighborhood Housing Services of Elgin grants low-cost rehab loans to residents who are unable to obtain financing elsewhere. A maximum of $15,000 can be used for projects such as correcting structural and mechanical defects, remodeling kitchens and baths, energy conservation and the addition of safety features for elderly and handicapped residents. Buildings with one to four units are eligible. Loan terms are for up to 10 years. The current interest rate is 9 percent. Telephone: 847-695-0399.
– The Emergency Program of the Housing Authority of Lake County helps low- and moderate-income residents repair unsafe conditions in their homes. The maximum amount is usually $5,000. For low-income borrowers the loan is 100 percent deferred until the title is transferred. No interest is charged. For moderate-income borrowers, the loan is 50 percent deferred at no interest. The remainder is repaid according to terms the borrower can afford and at 3 percent interest. Telephone: 847-223-1170, ext. 220.
– Home equity loans. If you’ve been in your home a while, you’ve got equity you can put to use. Most banks and mortgage lenders offer home equity loans. Although the specifics vary, the loans come in two basic models. The home equity line of credit lets you write out checks–up to a specified limit–as you need the money. You pay interest only on what you spend. The fixed-rate home equity loan gives you all your money at once. You pay it back according to a predetermined schedule. Interest rates are usually lower with a fixed-rate home equity loan but the fees can be higher.
– Credit cards. As a last resort, pull out the plastic. With low introductory rates many cards are offering, the cost of borrowing is cheap on a short-term basis. Make the improvements that will increase your home’s value, then refinance your mortgage and pay off the cards.
