Home Renovation Loan FAQ
A home renovation loan is a great way to have the home you always dreamed of having. If you have an Austin (or elsewhere) home or investment property that you need to update, you can learn more about a home renovation loan and how you can finance your project with this helpful home renovation loan FAQ.
What is a home renovation loan?
A borrower can finance renovation or repair costs within her loan when she does a renovation loan. With this type of loan, a homeowner can have the costs of construction to be rolled into the loan. There are several types of mortgage options available.
Can I do a home renovation loan as part of a refinance?
Yes, you can do a home renovation loan as part of a refinance and can borrow up to 95% of the appraised value of the home subject to completed renovations. That means that the appraiser will take the renovations into effect on the appraisal so you get credit for the upgrades.
Can I do a home renovation loan during the purchase of a home? How does it work?
You can definitely do that. Like the refinance program above, the appraiser takes the upgrades into effect on the appraiser. You will close on the purchase of your new home per the purchase contract terms and add the construction terms to the transaction. While we process your loan, you gather bids from contractors and select one to do the work. We add the costs to the purchase price and then determine the loan amount per your program guidelines.
Do you have a jumbo home renovation program?
Yes, we have a jumbo home renovation program. Please visit my jumbo renovation loan page to learn more about this program.
Can I do any of the repair/renovation work myself?
No. Many investors, including FNMA and FHA, do not allow this as it can lead to potential fraud. Even if you are a licensed contractor, the construction funds must be disbursed to a legitimate third party contractor(s).
What types of loan programs allow me to do a renovation?
In short, we offer FNMA, FHA and a jumbo renovation product. FNMA’s Homestyle program allows renovations up to 95%; FHA allows repairs/renovation to 96.5% via the 203k programs, and jumbo to 80% of purchase price (plus construction costs) for purchases. The same percentages apply to refinances but we use the appraised value with improvements to be completed.
If I am purchasing a home, can the seller pay for repairs in one of these programs?
In short, yes. We can do a simple escrow holdback where the seller sets aside a portion of his proceeds to fund your renovation costs.
Is there a limit on what can be borrowed for a renovation?
Yes. FNMA, FHA and most lenders do not allow the renovation costs to be greater than 50% of the acquisition price.
What type of repairs can be done?
Think cosmetic and safety. You cannot add square footage (adding square footage is considered a remodel). Structural repairs, like roofs and foundations, are allowed within reason. People generally repaint, replace counters and flooring, fix plumbing and HVAC issues, etc.
How soon does all the work need to be completed?
Depending on the program being used, we can go up to 100 days to complete the project. That being said, not all programs offer that generous of a timeline. It is wise to get a solid completion estimate up-front from the contractor as extensions can get expensive. If you need a longer timeline, we will be discussing a construction loan.
Can I upgrade or add appliances?
You can add appliances to the renovation costs if they are built-in. That includes refrigerators. The reasoning is that if financed, the appliances need to be part of the home and add value. If the appliances are not built-in, they can be rolled away at any time.
How does the builder get his money?
The builder or contractor will submit a draw request to our construction department who will, in turn, disburse the draws to him after inspection.
How many contractors can I use?
That depends upon the program. You need to keep in mind that using more than one contractor may cost more. A renovation borrower may have between one and three contractors.
Can I add a pool?
Yes. We do offer a program for the addition of a pool.
When the project is complete, what do we need to do?
Once the bank disburses the remaining construction funds, the contractor will sign an “all bills paid” affidavit to ensure no liens remain outstanding. You don’t need to do anything!
Contact me for any additional questions and a complimentary consultation on how we can help with your home improvement loan today.