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.