Definitions

• A first-time home buyer loan is a specific type of mortgage. Many lenders will make no distinction between a first-time buyer and another buyer. However, some lenders will have programs aimed at first-time buyers. For example, the Federal Housing Administration (FHA) has a first-time home buyer program that offers low down payment options to qualified buyers. These loans do not necessarily account for home improvements. However, you may be able to build in a rehabilitation loan into a first-time home buyer loan in order to immediately finance the renovation of a property.
  
  

Benefits

• The key benefit of taking one loan for both the purchase and improvement of a property is to ease the loan process. Rather than having to take multiple loans to find and rehabilitate a home you love, you can take just one loan and have only one bill. The FHA's 203k Rehabilitation Loan is one example. This loan can help first-time home buyers buy inexpensive properties, often in neighborhoods needing revitalization, and fix them up, building equity and helping the neighborhood improve.
  
  

Challenges

• Anytime you plan on buying a "fixer-upper," you may face a challenge when it comes to the home inspection. A lender will be wary of extending a loan larger than the home's current value. Whenever this occurs, the lender risks losing money if it needs to foreclose. As a result, lenders require a home inspection prior to closing on a mortgage loan. The inspection should show the home is valued at least as high as the mortgage. In the case of some fixer uppers, you may find the inspection shows a low value in the property. You will need to work with a lender willing to extend a loan based on perceived future value, and this can be hard to find.
  
  

Alternatives

• If you are not able to find a first-time buyer loan with the option of a home improvement loan, consider bridge financing. Bridge financing is often used when a buyer purchases a plot of land with the intention of building a home. Since the home has no current value, obtaining a mortgage can be challenging. Instead, the buyer receives a loan to purchase the land and pay the cost of building the property. The loan, which is often high-interest, is replaced with a permanent mortgage once the home is built.