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Remodeling Loans Numerous requests have been received regarding the need of homeowners and buyers to have a better way to finance improvements on their existing home or the home they are purchasing. In the past, homeowners or purchasers wishing to finance improvements only had a few alternatives. These were 1) Pay for improvements in cash or with credit cards. 2) Do a cash-out refinance based on the current value of the home. 3) Take out an equity line, which are both based on the current value of the home and carry above market rates. 4) Get loan approval based on the value of the property after improvements are made. This still places the burden of funding the improvements on the homeowner who will not be reimbursed until after the loan closes. I am a mortgage broker and represent 16 of the largest construction lenders in the market. As a broker, I work for my client and not the lender, taking the time to understand your situation and placing your loan with the lender whose programs most closely matches your situation and needs. I am able to give you unbiased advice and support throughout the process. Construction and renovation lending is a specialized part of mortgage banking and most lenders or brokers do not have the experience to guide you through this complex process. I have attempted to give you some basic information in this paper but please do not hesitate to call to discuss your individual project. At the most fundamental level, construction lenders offer two types of product characterized by how they base interest rates during the construction phase. I will refer to these approaches as “One Step” and “Two Step” These programs allow you an opportunity to refinance your current mortgage or purchase a new home and fund the improvements as they progress. The loan is then modified at the completion of the improvements to one of the lender’s permanent loan products. Remodeling loans are a variation of the "One Time Close" construction/perm product. The major advantage of a remodeling loan is that we lend against the finished or "as completed" value of the property rather than the current value of your home as most other lenders do. With other programs, you are out of luck if you do not have enough equity to complete the project. The loans have two uses: If you are purchasing a property that would be perfect if it had....... The first disbursement acquires the property and subsequent disbursements occur at predetermined points in the construction process. After construction, the loan modifies into the permanent loan of choice saving the cost of a second closing. If you are remodeling an existing property because it would be perfect if it had.... The first disbursement refinances any liens against the property and advances the contractor any up front costs. Subsequent disbursements and modification follow the above process.
Under some of the above programs, you may act as your own General Contractor if the remodeling costs are less than $50,000 and the "footprint" of the home is not changed. If your project is large or will change the foundation we will require a fixed price contract with a licensed contractor. Other loans which can be used for remodeling. We offer Second Trust or Home Equity Lines of Credit for your principal or vacation home up to 100% of the Current Value of your home. |