Picture this…you’re searching for your dream home but are having trouble finding a property that checks all the boxes.
There’s a home that has good bones but needs a facelift. Another is in the perfect location, but the home is too small. Your favorite is a fixer-upper that needs some serious TLC to be livable.
In all of these scenarios, a Renovation Loan may be the ideal solution! These loan programs allow you to take a home with potential and turn it into your dream home.
What is a Renovation Loan?
A renovation mortgage allows you to combine the purchase price of a home with the cost of any renovations to that home, into a single loan.
Renovation Loan Uses
We’ve done home renovation loans for many different reasons!
Recently our client purchased a 3-bedroom home for their family. The home was in good condition but didn’t have the number of rooms they needed. They used a renovation loan to construct an entire second-floor, adding on additional bedrooms and a bathroom.
In another scenario, our clients purchased a structurally sound home with an outdated interior. They used a renovation mortgage to remove several walls to modernize the home with an open floor plan. They also installed a new roof, remodeled the kitchen and bathrooms, and installed new flooring throughout the home.
The possibilities are endless with a Renovation Mortgage! Renovations can be as simple as replacing paint and carpet or fixing an HVAC system. Or, they can be as complex as adding square footage or completely remodeling kitchens and bathrooms. Use a renovation loan for plumbing, electrical, roofing, siding, doors, windows, and much more.
Renovation Loan Process
The renovation loan process is similar to a standard mortgage process, with several exceptions.
In addition to shopping for a home, you will also need to shop for a contractor. This contractor is responsible for preparing the bids for your renovations. It’s important to note that with a renovation loan, the homebuyer cannot do any of the work that is part of the renovation loan. A general contractor, or subcontractors working through the general contractor, must perform all projects that are included in the scope of the loan.
Next, the renovation bid total from your contractor is combined with the purchase price of the home. On top of the purchase price and the repair bid, certain fees and additional contingency reserves are added to the total amount, depending on the loan program. This total amount determines the amount of your down payment (if required) and your total loan amount.
Some loan programs require the use of a HUD Consultant. A HUD Consultant is a project manager for the renovation project. They handle paperwork, conduct assessments and inspections of the property, and determine the loan fund distribution. If your loan requires a HUD Consultant, you can finance their fees into the loan.
First Steps
A pre-approval is the first step in the home renovation loan process. There are many different renovation loan programs, each with different qualifying requirements. At KTL Performance Mortgage, we will review your loan application and let you know what programs will meet your needs.
Apply online! Or give us a call at 877-892-8222 and ask to speak to one of our home renovation loan experts!
Originally published March 29, 2022, updated March 4, 2024
