Renovation Loans
Renovation loans are loans you can use to buy a rundown home and renovate it or to renovate your own home.
Renovation loans don’t focus on a property’s current value but on the property’s after-repaired value.
There are several ways to get funding for renovation loans.
Cash-out Refinance
If you own your home and want to renovate it, you can use the equity you’ve built to fund the renovations. Most cash-out refinance loans allow you to borrow up to 80% of the home’s value minus any outstanding loans.
You can use the funds however you want, and you receive them in one lump sum, so it’s up to you to manage the funds, so you have them available for your renovations.
Home Equity Line of Credit
A home equity line of credit is a feasible way to access your home’s equity. This is a second mortgage on your property. Borrowers can typically borrow up to 80% of the home’s value minus any outstanding loans.
HELOCs are a line of credit; you can draw the funds as needed and are only required to make interest payments on the amount you withdraw. The draw period lasts for 10 years; after that, your loan is fully amortized, and you’ll owe principal and interest payments for the remainder of the term.
Renovation Loans
Renovation loans, such as the FHA 203(k) loan, base your loan amount on the property’s purchase price and renovation costs. Lenders look at the home’s after-repaired value based on the renovations you’ll make.
You have two FHA 203(k) loan options:
- Streamline FHA 203(k) – The streamline FHA 203(k) loan is for non-structural repairs that cost less than $35,000. This straightforward program allows homeowners or homebuyers to renovate their homes easily.
- Standard FHA 203(k) – The standard FHA 203(k) loan is for structural changes or renovations that cost over $35,000. The program is more complicated as it requires blueprints and for you to work with a loan consultant who oversees the project, fund draws, and final project approval.
Advantages of Renovation Loans
Renovation loans provide you with the funds to buy and renovate a home, or if you already own the home, just to renovate it.
All renovation loan options offer:
- Competitive interest rates
- Low down payment requirements
- Easy access to funds to renovate a home
- Flexible underwriting requirements
How to get Started
If you’re thinking about buying a fixer-upper or renovating your existing home, contact us today. We’ll help you determine your loan options based on the property and your personal qualifying factors.
Together, we’ll find the perfect loan to help you make important real estate decisions and renovate your home or an investment property how you want.