Can I finance the cost of my home renovation into my mortgage?
Yes you can! Renovation loans are ideal for a number of situations ― such as purchasing a new home, renovating and refinancing your current home, sprucing-up a vacation home or updating an investment property. In each of these cases, you do have the ability to finance most, if not all, of the costs associated with your renovations into a mortgage.
There are several types of loans that can be used to finance the costs of renovations, these include FHA 203(k), FNMA HomeStyle®, Construction-to-Permanent (also known as a C/P loan), or Home Equity. These loans typically include all of the costs of minor and major repairs, additions and renovations, plus the purchase price or existing home loan balance, minus the required down payment or current equity in the home. Keep in mind that allowable renovations may vary depending on the renovation loan type you choose.
Homebuyers can transform an outdated home in a great location or resolve property problems or required improvements right away.
Homeowners can modernize or expand to enhance the value of their home or repair and remodel their home without depleting their savings.
A wide range of home improvements can be accomplished with a renovation loan. These include, but are not limited to: Remodeling kitchens and baths; aesthetic changes and upgrades such as new siding, paint and landscaping; repairing or replacing a deck; finishing a basement or raising a roof; structural improvements, changes or additions; installing accommodations for handicap access; adding, repairing or re-roofing a garage; completely rebuilding a home on a modified existing foundation; and replacement of electrical, HVAC, plumbing, installation of well and/or septic tanks.
The loan process is straightforward and a licensed and experienced Renovation Mortgage Loan Originator can walk you through the process:
Once the Work Write-up or detailed bid is completed and reviewed by you and your Mortgage Loan Originator, it will be sent to an appraiser, who uses it to determine the after-improved value of the property.
It’s never too early to start interviewing contractors. As the homeowner, you are responsible for selecting a contractor to do the actual renovation work. It is suggested to get recommendations for contractors and then price quotes either prior to or immediately after selecting a property.
The Mortgage Loan Originator submits the Work Write-up or detailed bid, contractor documents and appraisal for final loan approval. Once the approval process is complete, and any outstanding conditions are met, the loan can proceed to closing.
The Closing Agent will have all required documents ready for you to review and sign, including the Closing Disclosure that details all costs of the transaction. A renovation escrow account will be set up to hold the funds to pay for the work to be done.
Funds disbursement “draws” are managed by the lender’s Draw Center. The Mortgage Loan Originator will provide the name and phone number of the assigned Draw Specialist, who will send you a welcome package with instructions for requesting draws.
How funds are disbursed:
Renovation financing loans are fully funded at closing. For purchase transactions, the home seller receives their net proceeds and Real Estate Agents are paid. A renovation escrow account is set up to pay the renovation costs. For refinance transactions, the homeowner’s existing mortgage is paid in full and the renovation funds are placed in an escrow account after a three-day waiting period. When a consultant is required the customer will be directed to contact the HUD Consultant or Draw Specialist to schedule an appointment for each required inspection. Funds are released in “draws” from the escrow account as work is completed. The HUD Consultant must inspect the completed work and submit a draw. Request form must be signed by you, the customer, the consultant and the contractor in order for funds to be disbursed. The Draw Request form is submitted to the lender’s Draw Department and a check will be issued by overnight mail. Checks will be made payable to you and the contractor.
The Final Draw
When all work is complete, the Draw Department provides a letter of completion, which you must sign and return prior to release of the final funds. You will also receive a final release form that confirms all the specified work is completed and shows how all funds were applied. For certain transactions, the Appraiser may be required to re-inspect the property and issue a completion report to the lender.
Everyone’s situation and budget are different, so, speaking with a Mortgage Loan Originator who is experienced with Renovation Lending should be your first call, so you get the results and the home you’re looking for!
Remember, a renovation loan can be used to purchase or refinance a home that is in less-than-perfect condition, make immediate improvements, and pay for them over time. That’s the power of renovation financing!
Tom Gumb, Branch Manager HomeBridge Financial Services, Inc.
(347) 582-4378 firstname.lastname@example.org www.homebridge.com/tomgumb