Considering much-needed repairs, a few cosmetic improvements or purchasing a fixer? I’m here to enable you and your vision with home renovation financing AND a team of experts to help.
What is Home Renovation Financing?
A renovation loan wraps all the improvement costs into a single primary mortgage payment using the estimated post-improvement value for qualifying. Designed to help both existing homeowners and those looking to take old and make it new with a fixer, renovation financing done right, boosts home value without depleting cash reserves or incurring higher interest debt financing.
If you already own a home, the renovation financing go-to has historically been a home equity line of credit (HELOC), a cash-out refinance or pulling from savings. As rates creep up HELOCs become less attractive. Consider an alternative, a home renovation loan.
Still shopping for that first home, start formulating that housewarming guest list with a 3% down renovation loan and an entire team to enable you!
Here’s a simple financing comparison highlighting the ability to fund renovations with the “future” value of the home and keep those extra dollars in your pocket.
Why Consider a Home Renovation Loan
For Buyers:
- Expand options and access to close-in charming older areas bursting with potential
- Avoid up-front out-of-pocket costs and customize your improvements
- Wraps all rehab costs into a single primary mortgage payment creating long-term savings in interest and an immediate increase in home value.
- Low down payment programs perfect for first-time home buyers
For Sellers:
- Ideal for properties in need of repair that won’t appraise “as is”
- Excellent tool to offer vision to prospective buyers for homeowners and estate heirs
- Expands buyer pool beyond cash buyers planting the idea of a low downpayment renovation home loan
- Offer a path to a “custom” home plus the expertise to support it
Renovation Loan Highlights
- Fund renovations based on the projected property value after all work is complete
- All work must be completed by licensed contractors
- Credit score down to 620 FICO accepted
- Down payments as low as 3.0% (LTV 97%) to 5% (95%) – vary by program and property type
- A contingency fund of 10% to 15% established to manage unforeseen repairs
- Condos qualify for interior work only
- Second home and investment properties must use Non-FHA programs
- Purchase and refinance options
- Work must begin within 30 days of closing and not cease for more than 30 days during renovation
- Improvements must be complete within 6 months of closing
- A dedicated team of experts from Fairway from qualifying to close
Buying a Fixer
Grabbing a house under market value is rare with an ever-increasing pool of buyers. A fixer can be an affordable solution, but comes with the unknowns and inevitable surprises of a remodel. Protect yourself by partnering with a lender who specializes in renovation solutions to manage the logistics from project scope to completion and close.
- Access to properties under market value that just need some love
- A custom home without the sticker shock
- No additional cash out of pocket to fund improvements preserving cash reserves for qualifying and future mortgage payments
- Qualify for properties that otherwise won’t appraise due to the type of repair needs
The Value in Fixing the Flaws
Updates can boost resale value and “the joy factor” of any home. Post-pandemic we have a mountain of data on the return by update type as remodeling became the stuck-at-home pastime for millions of homeowners. The chart below highlights one of many data points in an extensive recap published by the National Association of Realtors.
Home renovations are a big financial investment. Treat yourself to financial counsel on what makes sense for your scenario and get some numbers to help your decision. Then dive in and choose your balance of return and joy as you design your home remodel.
Keep in mind:
- How long do you plan to be in the home?
- Which updates offer the best return on investment?
- Are you equipped with the expertise to evaluate bids and manage the process?
- How to best fund the project to prevent a financial burden in the future.
Affordability Paired with Expertise
If a home renovation is in your future, I highly encourage working with an experienced team. This is my shortlist of what the Renovation Team at Fairway provides.
- Dedicated experts to walk you through the complexities of these multistep loans
- Facilitate communication between all parties including a clear understanding of draws, timelines, and terms for contractors and borrowers
- Knowledgeable access to all HUD resources in cases of 203K programs
- Coordinate communication between all parties in conjunction with your loan advisor during each phase
- Prevent delays, assist contractors in gaining appropriate approval, protection for borrowers
- Provide a template for contractors to simplify compliance
- Assistance with homeowners insurance specific to renovation financing
- Manage the inevitable surprises of a home remodel
- Provide a list of approved contractors in all areas of the country
Nuances of Home Renovations
- More moving pieces – set realistic timeline expectations ( 45 to 60 days)
- No do-it-yourselfers
- Costs change during the process ( number and cost of inspections vary especially with HUD)
- Delays HAPPEN – contractor response, additional unforeseen repairs, HUD interface
Making it Affordable and Protecting the Homeowner
Backing into a renovation budget from a desired monthly payment is an excellent quick read on the feasibility of a project. It might mean full steam ahead or backing up and making a few trade-offs in desired versus necessary improvements.
Knowing how much you want and can afford in monthly payments prevents costly errors and over-improving. With a home renovation loan, the post-improved home value is determined before any work begins so even if a home buyer or homeowner has no experience in renovating and valuing, they are in expert hands with our seasoned renovation team.
I highly encourage evaluating qualified resources when it comes to home renovations. After working through numerous projects of my own, I can attest to the value of expertise.
