Don't Live in the Past, Live Your New Home

The Renovation Loan Rundown

The 5 Core Steps of a Renovation Loan

Whether a seasoned investor using a HomePath Renovation or HomeStyle loan, or a first time homebuyer purchasing your first home that needs some TLC, and using an FHA 203K or HomePath, please know that the steps for obtaining and securing a renovation mortage are always the same.

I call these "The 5 Core Steps of a Renovation Loan".  These steps begin once you have a ratified contract in hand.

1. Application and approval - Applying for a renovation mortgage is no different than applying for a regular, non-renovation mortgage.  All required documents are pretty much the same.  W-2's, paystubs, bank statements, etc...are fairly run of the mill from loan to loan.  Once submitted, the underwriter rendors a decision on the loan, usually an approval. 

2. Work write up or bid - Both of these documents do the same thing; they tell underwriters and appraisers what will be done to the home during renovation, and what that work will cost. 

3. Appraisal - All renovation appraisals are completed "subject-to" or as if the work was already done.  Important: The appraisal cannot be ordered without Step 2 (above). 

4. Project management - This is documenting who is doing the work and validating thier credentials.  We as lenders can't tell a borrower which contractor to use, but we can tell them that they must use a contractor.  Some exceptions apply.

5. Close and renovate - Once the first 4 steps are completed, then a closing date can be set.  When the loan closes, the seller is paid, the realtor is paid, and the money for the renovation is put into an escrow account that our draw department manages.  On some loans an advance draw is made right after closing, and on others the draws are issues based on work completed to date.

So those are the 5 steps.  However, remember, if you remove steps 2 & 4, you are looking at a regular loan.   So there are really only 2 additional steps on a renovation loan.  They are not easy, but they don't have to be hard. 

Call me anytime to learn all you wish to know about renovation loans.

Eligible Repairs and Renovations

The above before and after picture is one of many examples of what can be done with a home.  So today let's talk about the kinds of repairs and renovations that are eligible under are renovation loan.  

The short answer is everything.  But to help a homeowner narrow down what they really want to do, you only have to remember these three limitations...

A. What the borrower qualifies for, as this will be needed to get loan approval.

B. What the property appraises for, as it has to appraise for at least the acquisition cost.

C. Program loan limit.  This varies by program, for example; the FHA loan cieling for Richmond Virginia is $535,900.  So as long as the loan amount does not exceed that, than all is fine. 

Beyond those three parameters, a borrower can finance pretty much everything and anything else they would want to do to home, as long as they finance at least the bare minimum to meet local building code.  This includes HVAC, electrical, plumbing, additions, baths, kitchens, structural alterations, environmental (mold, asbestos, etc...), flooring, roofing, and on and on.