Renovation Loans for Your Fixer Upper or Renovations

Are you a buyer who goes into open houses and you see a home that you potentially like thinking that “This would be great, but I know I'm gonna need to do a ton of work on this home and how am I going to finance it?” Or are you a homeowner who's thinking, “I want to make a major change to my home, but how do I finance it? What are some of the issues around that?”

Rick Waldron from Guaranteed Rate Affinity and I, David Lenoir from Coldwell Banker Realty,  wanted to talk about some financing options --- one for a buyer, how will they take that fixer upper and finance it to make it better? And two, for the homeowner, what do they do if they want to have a major job done? 

So you've found the home of your dreams, however you're realizing that you don't have quite enough money post-closing to fund the cost of those renovations. We have what we call a renovation loan, where you're basically adding  cost improvements to the acquisition cost. We bring a contractor in to give an estimate then we order an appraisal. The appraisal is done based on the improvements or the after value, once the improvements are completed.

So you are basically putting your down payment based on the sum of the acquisition costs plus the cost of improvements. If you're doing like a 10% or 20% down payment, are you ending up putting more down there? Not necessarily, for renovation loans, you can put as little as 3.5% down.

For example, if you're buying a home for $500,000, and you need to do a new kitchen, or a new bathroom; Let's just say a $100K is going to be the cost of improvements. So your acquisition cost is $600,000. You can finance up to 96.5% of $600,000. So, effectively putting 3.5% down, you're having the ability to finance those renovation costs.

If you're a homeowner who currently has a home, would you also be eligible then for a renovation loan, or should you be looking into home equity? You can look at both, depending on your current equity position --- whether or not you have enough equity to pull a home equity line of credit because a lender or a bank that is providing a home equity line of credit is looking at existing value, not value based on after improvements. So that is one option. If the equity isn't quite there to cover the cost of those improvements, a renovation loan would be a better option. 

Bottom Line:

A renovation loan is a type of loan that provides funds to complete extensive renovations that may increase the value of your home considerably. If you’re considering renovating a home but may not have enough savings to cover the expenses, a renovation loan could be a suitable option to finance your project. Reach out to us to help you explore your options and learn more.

For more information, DM me or call 781-734-7098.

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