How to Get a Renovation Loan 101
The Best Way to Get a Renovation Loan
I’ve been in the lending business for about 20 years. I came across this question What is the best way to get a Renovation Loan and I’ve got a lot of experience with this type of financing so I am qualified to answer it here for you.
The first you need to know is that with renovation, it can be tricky. You want easy options to start the renovation. Using a renovation loan, if you’re already in your existing property, you can basically treat it like a refinance.
So you take what you owe on your house, figure out your construction costs are going to be, add that to your existing loan balance, and then essentially you refinance for that amount, along with your closing costs.
Then, a contractor comes out, confirms all the numbers that you have, puts together a bid, and then they start the renovation process. It must begin within six months of closing the loan, and from there it works like a construction loan.
All of the upgrade costs will be put into an escrow account, and the builder will take draws as needed. I can get into each phase but I want to stick to the basics of what the renovation loan entails.
The other great thing about a renovation loan is that you have a couple different options/programs, depending on if you have good credit or bad credit.
If you have good credit, there can be a favorable interest rate as well as terms of repayment for a Home Renovation Loan. Also, it allows you to do more with the renovation — swimming pools, landscaping, additions to the foundation — the scope of work is a lot more broad.
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An alternative is FHA Renovation, which is better if your credit isnt as good, in which case you’ll be limited to renovations like flooring, cabinets, painting, carpets, and things like that.
Those are the two primary programs using for renovation loans.
The final thing I’d like to talk about is basically what’s available — what are you allowed to do with the renovation loan. There are two types:
You can do more of a cosmetic renovation loan in which you would do siding, painting, ceiling, maybe more aesthetically pleasing type of work, or you can do a full renovation, in which you can tear the house down to the studs and rebuilding — plumbing, electrical, adding a facade, you can completely change it. There are a lot more options with the full Home Renovation Loan.
Those are the best options for a renovation loan.
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