Renovation, Remodel, Rehab all these words mean the same thing and are used to create the house you have into the house you want with a renovation loan. Recently we have had an increase of calls looking into renovation loan options and if can be done as a refinance. This comes as no surprise since it is stemming from the increasing market values and limited inventory, so many are choosing to stay where they are and looking into the possibilities for renovating their current home to accommodate by either making needed upgrades or adding additional space for their growing needs. Not only will this increase their current value but can also put the home in a better position when the homeowner decides to sell.
Renovation loans can be done as a purchase but as I previously noted are becoming more popular as a refinance. A renovation loan takes what you owe on your existing mortgage and then adds the cost of the renovation, making it one loan, one mortgage payment. It is not a second such as a home equity line of credit (HELOC). With renovation loans, you are also able to use more of your existing equity as opposed to an HELOC or cash-out refinance. Most HELOC’s and cash-out refinances will typically only allow you to borrow up to an 80% LTV.
Mainly with renovation loans, you will need to qualify for the new loan amount and monthly payment as well as your loan amount can’t exceed FHA or Conventional loan limits. You are required to hire licensed and insured contractors. Depending on the amount of renovation you may be required to hire a licensed and insured general contractor (GC). Self-help is not permitted! There is an FHA option (FHA 203k) and a Conventional Renovation loan. We look to see which option is the best for your needs.
With these loans you are able to renovate kitchens, bathrooms, bedrooms, replace roofs, gutters, add and/or repair landscaping, finish a basement, renovate or add a detached garage, replace HVAC, plumbing, or even add a room, etc. As you can see renovation loans can help you renew, restore and replace what you need and want in your existing house.
Now you need to know that not all lenders are capable of offering renovation loans so if you are currently working with a lender and this is of interest you will need to ask if they have these loan options available asap.