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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 sense.

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 the project.

Second , Home Equity Lines of Credit are prime based adjustable rates and are really not suitable for long term financing needs.


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 contracts.


Can I act as my own General Contractor?

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 loan selected.


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 Draw Schedule?

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 Work?

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 disbursed.


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 and Insurance.

 


Understanding Renovation Loans  |  What Can a Renovation Loan be used for?
Types of Renovation Loans  |  FHA 203k Program  |  Fannie Mae Homestyle Program
Other Conventional Programs | The Loan Process
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Renovation Loans.com | 11403 Cronridge Drive, Suite 232 | Owings Mills, MD 21117
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