Home Renovation Loans
Recently, I’ve been receiving questions from buyers asking about how to get home renovation loans and what types of options do I have?
Renovation Loans for Current Home
First, if you are looking to renovate your current home or going to purchase a home, you have a few options.
If you own the home, you may have equity. Home equity is the value of ownership built up in a home or property that represents the current market value of the house less any remaining mortgage payments. This value is built up over time as the property owner pays off the mortgage and the market value of the property appreciates. If you have equity, you can apply for a Home Equity Line of Credit or HELOC. A HELOC is similar to having a big credit card to do repairs.
You can also get a second fixed loan, where the bank determines a certain amount that you have to pay off over a length of time. Lenders will typically give you a combined loan-to-value or LTV ratio of 90%. That means if the home is going to be worth, 1,000,000 dollars, you can get up to 900,000 dollars in loans. You can also do a cash-out refinance where you refinance your home and cash-out a portion of it to make repairs.
If you are buying a home and intend to renovate it, you can do something similar to a construction loan. The bank can approve you for both the purchase as well as the renovations. Your down payment will be determined by the full amount. For example, if you are purchasing a home for 600,000 dollars and you want to do 200,000 worth of work, you will be based on the purchase price plus the renovation cost. Sometimes the loans can convert to an ARM or a fixed loan.
New Construction Renovation Loans
For new construction, a typical construction to permanent loan is a loan that is converted to a traditional mortgage after completion of home development. For example, if you purchase a lot for 500,000 dollars and you are going to put 500,000 dollars of work in to it, when you go to close you’ll put down typically 20% of the total amount. The bank will close the loan and pay the developer or contractor on a draw schedule as they complete work. When the work is finished, the loan will be converted to a traditional mortgage. It may be a fixed rate or an ARM that adjusts to a fixed.
It is also possible to get renovation or construction through federal programs such as the VA and FHA.
If you have any questions regarding any of this information, feel free to comment below, send us an email at [email protected] or give us a call at 571-969-7653.