Why do a renovation loan
over just taking the money out using a home equity loan?
Sometimes a home equity loan does make more sense but there
are two major reasons why a renovation loan may make more
First, a traditional home equity loan will only allow you
to use the current (before improvements) value of your home
as a basis to calculate your loan amount. If the project is
large enough, you may need to use the completed (after improvement)
value in order to borrow enough money to cover the cost of
Second , Home Equity Lines of Credit are prime based adjustable
rates and are really not suitable for long term financing
What types of Construction
Loans and Renovation Loans are available?
Construction / Perm loans are available to finance custom
home construction, acquisition and/or remodeling of an existing
home. All of our construction loan programs are based on the
"as completed value" of your home.
What Documentation do I
need to apply for a Construction or Renovation Loan?
In addition to the standard documentation you would need
for any mortgage (bank statements, employment and income verification,
etc.), you will need to provide us with plans, specifications,
and a fixed price builder contract. In some cases you may
act as your own General Contractor, however we will still
need a cost breakdown plus subcontractors bids/fixed price
Can I act as my own General
Some programs will allow for you to act as your own general
contractor but you must be able to show you have the ability
to do so by showing that you have a construction background,
have worked for a builder, or have completed similar projects
in the past. Remember, we aren’t builders; we just want to
be comfortable that you have sufficient resources to complete
the project as planned.
What Is Required Before
Funds Can Be Advanced?
Prior to disbursement of funds, you will need to provide:
a copy of the building permit and hazard insurance or builders
risk insurance. Prior to your loan's conversion to permanent
financing we require updated hazard (homeowners) insurance,
well certification (if applicable), a final survey, and the
use and occupancy certificate from your locality. Other items
may be required depending on the type of renovation or construction
What fees and closing costs
are associated with Construction and Renovation Financing?
The only fees you will see in addition to normal closing
costs are the fees for draw inspections and in some cases
a fee for modification to a permanent loan. Fees on 203k renovation
loans are also more than for regular FHA (203b) loans but
the difference is not substantial.
Is Mortgage Insurance required?
Although there are ways to avoid it, typically, Private
Mortgage Insurance (PMI) is required on the permanent loan
when your down payment is less than 20% of the completed value
of the property. Depending on your equity position when completed,
we can usually work it out so you do not have to pay PMI.
If you are financing your project using the FHA 203k program,
your loan will have mortgage insurance.
What will happen if I need
more time to complete construction?
We try to make sure up front that sufficient time is budgeted
to your project. In the rare case when a project is not completed
on time, an extension is usually not a problem but an extra
fee may apply.
Who Is My Primary Contact
During The Construction Process?
We will put you in touch directly with the department that
takes care of constitution / renovation loan servicing; they
will be able to assist you and your builder during construction
with most issues that arise. Additionally, your loan officer
is always available to step in and help with anything you
are having difficulty with.
What Is The Draw Schedule?
The "Draw Schedule" details the amount available to be disbursed
and requirements that need to be met throughout the construction
process. Generally, there are 3 to 6 draws. Draws are disbursed
by the Title Company after inspection by the appraiser to
verify the work.
When Will I Receive a
You will receive a draw schedule prior to closing. Should
you or your builder have any specific needs, please let us
know up front.
What Methods Are Available
For Disbursing Funds?
Generally, funds are disbursed by check to you and your
builder jointly. Other arrangements can be made if necessary.
How Does The Draw Process
Once a draw is requested, we will send an inspector (generally,
the appraiser) to verify that the necessary work has been
completed to secure the next draw. Funds are then immediately
What are my payments going
to be during the construction phase?
On our conventional programs, payments are interest only
based on the outstanding balance until construction is completed.
A bill will be mailed out each month. 203k loan payments are
based on the full loan amount, principal, Interest, Taxes