Are you looking at homes that may need some work, whether it’s just a few updates or a full-scale renovation? Did you know that you can finance the cost of that work into your loan and likely save money? Below are some helpful facts to know about renovation loans:
- Available for FHA and conventional loans
- Available for primary residents and investors
- Available for refinancing (can sometimes get you more than a HELOC)
- Loan terms generally the same as non-renovation loans (loan length, down payment, etc.)
- Only difference when applying is interest rate and credit requirement may be slightly higher
- Best for projects over $15,000, or for homes that wouldn’t otherwise qualify for FHA loan due to condition
- Maximum loan amount is $625,000
- Work must be completed within 3 months of settlement for small projects and 6-9 months for larger projects
- Desirable to seller because buyer won’t be inclined to ask for minor home inspection items
- Contractor must provide detailed estimate of work and appraiser must give estimate of value before final loan approval
- Using a general contractor is recommended to streamline process
- At settlement, a portion of the loan amount is given to the contractor. Lender then issues periodic draws throughout the renovation process until completion.
- Once work is complete, the property will be inspected and release of final payment to contractor will be authorized
For more information on renovation loans, check out this list of recommended lenders.