How a renovation loan can solve your home headaches
After a year at home—sheltering in place, transforming homes into remote-learning academies, fine-dining establishments—many people have become acutely aware of everything that bothers them about their current homes.
All that time together at home has brought their list of grievances to the forefront, only to reinforce those ever-evolving wish lists—be it a backyard, an additional bathroom, better appliances or just more square feet.
With home taking on a whole new meaning, it’s left many homeowners wanting to cherish their properties and many renters wanting to become owners. As vaccines are underway, the world is beginning to open up a little bit more every day, and people are looking to make a move.
High demand met with low inventory
Enter, the inventory issue. There simply aren’t enough homes on the market to meet the current demand. At the end of February, total housing inventory hit a record low, falling 29.5% from only a year prior. Homes are being swept off the market in record time, and buyers are continuously being outbid.
This is where a renovation loan can make all the difference, putting the spotlight on those “fixer-uppers” that often go overlooked by prospective buyers. Renovation loans allow borrowers to factor the cost of renovations into their mortgage—alleviating the worry of how they’ll afford extensive repairs. This can quickly expand a buyer’s search options at a critical time when those highly-sought-after homes are flying off the market. Suddenly homes that buyers wouldn’t have previously considered become viable options.
When moving isn’t the only answer
For current homeowners, a renovation loan gives way to the option of staying put, while still getting what they need out of their homes. Those homeowners who are reluctant to leave a home and a neighborhood they love, but need an additional bedroom, a bigger bathroom, better appliances—you name it—can opt to refinance and make those improvements to their current home.
Many renovations even have the potential to increase the value of a home, so you’ll want to figure out your potential return on investment for any renovation plans you’re making. This can be particularly helpful with some of the little details.
So, yes, maybe you are for sure going to remodel your bathroom, but should you go with a midrange or upscale renovation? Are those fancy marble countertops worth it? Remodeling Magazine’s Cost vs. Value Report is a great place to start to get some of those questions answered.
Whether your renovation plans consist of shopping for a fixer-upper or renovating what you already own, you’ll want to be sure to work with a renovation loan specialist. With their extensive knowledge on all the things that have the potential to pop up throughout a renovation, they’ll be able to help ensure your process runs as smoothly as possible.
Guaranteed Rate Affinity’s dedicated renovation specialists ensure a transparent and simple process, while a consultant oversees the project to protect you as a homeowner.
Our specialists will be able to walk you through the process, but it will generally include the following steps:
- Getting pre-approved so you know the exact budget you’re working with
- Finding a property (if you’re moving)
- Making your offer
- Meeting with a HUD Consultant/Contractor at either your home or the fixer-upper you’ve found to conduct a project review and decide on repairs/potential projects
- Obtaining contractor bids for intended improvements—can consult with architects, designers or engineers
- Ordering your appraisal
- Underwriting—reviewing your appraisal and final renovation budget with your Renovation Specialist to prepare for closing
- Closing—receive, review, sign and return your Closing Disclosure
- Renovating! You can pull out/draw money from your renovation loan up to five times to pay contractors or for supplies, etc.
- Walking through your final inspection to ensure all repairs have been completed and the building is up to code
There’s a loan for that—your reno loan options
Different types of renovations may call for different types of loans, so your loan officer may point you in the direction of a more specific loan. For instance, if you’re looking to make energy efficiency upgrades, you could look into an Energy Efficient Mortgage.
There are also a variety of renovation loans to meet each buyer’s specific needs. Some options include:
- Fannie Mae HomeStyle Renovation Loan: Offers a wide range of renovation projects—from needed repairs to luxury upgrades—and can be used when purchasing a new home. It also allows you to borrow against the future value of your home.
- FHA 203k: The Federal Housing Administration (FHA’s) loan includes standard and limited options as well as a refinance option, and also can be used when purchasing. These types of loans are specifically to be used while working with a contractor.
- HELOC: A Home Equity Line of Credit (HELOC) allows current homeowners to pull a line of credit from their home equity for a set timeframe. Homeowners are able to draw funds as needed with competitive interest rates.
- Cash-out refinance: Allows a homeowner to refinance their current mortgage for more than the amount owed—taking the difference in cash—which can be used for a variety of things, one of which being renovations.
Working with a loan officer will ensure you can select the best option that correlates with your renovation plans—whether they include finding a new home or updating your current home.
“Real Approval” means an automated underwriting system approval based upon credit information supplied by applicant and subject to Guaranteed Rate Affinity’s review of loan documents. Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Restrictions may apply, contact Guaranteed Rate Affinity for current rates and for more information.
Guaranteed Rate Affinity, LLC is a private corporation organized under the laws of the State of Delaware. It has no affiliation with the US Department of Housing and Urban Development, the US Department of Veterans Affairs, the US Department of Agriculture or any other government agency.