If you are searching for ways to finance your home renovation, this post offers an overview of how that is done using first lien mortgage products. The advantage is you have one mortgage done when you purchase or refinance the property which also has the funds to do a renovation project. This means one mortgage lien recorded on title, one payment, one fixed interest rate for up to 30 years, all with one closing.
In other words, you can purchase a 1 to 4 unit property and add renovation dollars at the same time with funds to begin the renovation as soon as you close on the purchase. The funds are held for you in an escrow account with the lender and paid out to your contractor(s) as repairs move forward. The purchase can be of an owner occupied property or an Investment property you will lease to tenants and never live in. Renovation mortgages are available for each situation.
The same is true if you own a property now but seeking funds to renovate it. This will be a replacement of any current mortgage(s) and paying it off with a new first lien renovation mortgage. The new renovation mortgage will be large enough to fully pay off the current mortgage(s) and replace it with one that also has funds added to pay for the renovation.
Below are the kinds of renovation mortgages offered with property type and occupancy type each allows-
- Conventional HomeStyle Renovation for owner occupied 1 to 4 unit properties
- Conventional Choice Renovation for owner occupied 1 to 4 unit properties
- Conventional HomeStyle Renovation for one unit Investment properties
- One unit – single family house, condominium, or townhouse
- Conventional Choice Renovation for one unit Investment properties
- One unit – single family house, condominium, or townhouse
- Investment 2 to 4 Unit Renovation (Portfolio) for Investors who will not occupy
- Term is Interest Only payment for 9 -12 months during renovation
- At completion of renovation borrower must pay off the loan by selling or refinance to a Conventional loan after the 9 to 12 month renovation period
- FHA 203K Renovation for owner occupied 1 to 4 unit properties
- Property can be mortgaged to 110% of value
- VA Renovation for owner occupied one unit properties
- One unit – single family house, condominium, or townhouse
- Jumbo Renovation for owner occupied single family homes
- For mortgages greater than Conventional loan limits on single family houses
Each mortgage type above will use an After Renovated Value (ARV) appraisal for loan approval. The ARV is key to underwriting and is based on the written renovation contractor proposal defining the scope and cost of the renovation along with purchase price.
All renovation mortgage types are required to add a 10% – 20% Contingency Reserve, based on the renovation cost, for unexpected expenses that may occur as the renovation is done. If never used, the Contingency Reserve is subtracted from the mortgage size at completion or can be used for additional allowed renovation work.
Owner occupied renovation mortgage types (except Jumbo) will optionally allow borrowers to add into the mortgage up to 6 months of mortgage payments (including property tax & insurance escrow and any mortgage insurance). This option offers borrowers less financial stress than having to pay for both current living expenses and a mortgage payment on property that cannot yet be occupied or produce any rent.
All loan types are available across 48 states excluding Alaska and Hawaii.
For details and examples please contact me any time.
Down payment and terms shown are for informational purposes only and are not intended as an advertisement or commitment to lend. Please contact us for an exact quote and for more information on fees and terms. All loans subject to credit approval. Rates and fees subject to change. Not all borrowers will qualify.
Perry Farella NMLS ID755943
FCM NMLS ID 629700