Use a renovation mortgage to create a home you love.
Are you in the market for a home but just can’t find one you love? Are you thinking it is time to update the kitchen or bath or make an addition to a home that you’ve been in for years but do not have the cash? A renovation mortgage may solve your problem.
Renovation mortgages can provide money to pay for renovations to a home you plan to buy or to a home you currently own. For a new purchase the renovation mortgage amount is based on a combination of the purchase price and the value of the renovation work. For a home you currently own the renovation mortgage amount is based on the current value of the home plus the value of the renovation work.
Renovation Mortgage Process
To be sure, renovation mortgages are a bit more complex than standard mortgages. For a standard mortgage the process is:
- You apply for a mortgage and provide supporting paperwork such as pay stubs, W-2s, bank statements, etc.
- A home appraiser will visit the home to look at its condition and estimate the value.
- An underwriter will review all your documents and the appraisal to approve the loan.
- Your attorney will perform title research and prepare paperwork for you to sign at closing.
For a renovation mortgage the application must include a detailed renovation plan including specific costs, a contract for the work to be done, and supporting information about your renovation contractor.
The appraisal process is a little different too. The appraiser inspects the home as usual, but also reviews the renovation plans, and provides an estimate of what the value of the home will be after the renovations are completed.
After the loan is closed, you will continue to work with your lender while the renovation work is being done. As renovation progresses your contractor will request money to pay for work he has completed in stages. Once the renovation work is complete you will close out the project with your lender and contractor.
Benefits and costs
Renovation mortgages let you take a house you like and turn it into your dream home! But you should be aware of the costs. In addition to the added complexity of the process, renovation mortgages typically carry somewhat higher closing costs and interest rates than a standard mortgage. In the end, getting your home customized to your liking may well be worth it.
Getting Started on Renovation Mortgage
For a new purchase
If you are planning to buy a home and are interested in finding one you can renovate, talk with your lender during the mortgage pre-qualification process so you know the specific costs and rates and how much you can afford. Do some research on renovation contractors and find one you want to use when the time comes. Research renovation costs in your area so you have a general idea when you look at a home what the cost of renovation will be.
For a home you already own
If you are interested in renovating your current home, talk with your lender about a renovation refinance and how much you can afford. Discuss your renovation ideas with contractors and get their bids. Stay in contact with your lender through the process to make sure you have all the right information together when you are ready to move forward.
Choosing a lender
It is important to choose a lender who knows renovation lending when you do a renovation purchase or refinance loan. Ask how many the company and/or Loan Officer have done. Ask if the company has separate processes in place for doing renovation loans.
Renovation Mortgage Summary
Renovation mortgages can let you transform a home you like into your dream home. They are more complex than standard mortgages and typically cost a little more but can be worth doing too get you a home you love.
NMLS #: 1476135
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