Who is right for a renovation loan? The typical person who leverages a program like this is frustrated with the lack of inventory in the market right now. The perfect houses seem to go instantly and the others need more work than they can afford to pay for out of pocket after closing. If this sounds like you, then a renovation loan could be an option.

What type of home fits a renovation loan? Renovation loans have the same top loan limit as standard conventional loans of $548,250. This is the max amount that can be borrowed inclusive of the renovation budget. You’re required to put a similar down payment as a regular conventional loan so 3%+ for first time buyers and 5%+ for all other borrowers.The typical up front purchase price for homes with this program will be under $500,000 plus the renovation costs which can be up to 50% of the purchase price.

I’m interested, so where do I start? Just like every other home purchase you should begin by making sure you have the right team in place to guide you. Brandon’s team will need to collect the necessary financial documentation to prequalify you for the purchase price plus the renovation cost. The requirements are very similar to standard conventional loans. The rates are slightly higher, but only by ⅛ to ¼ of a point higher than most other conventional loans. 

In the early stages, you will also need to start interviewing contractors to complete the renovations. You can use any licensed and insured contractor pending a background check and soft credit pull to approve them with the lender. If you don’t have any contractors you love, I would be happy to connect you with my list of preferred vendors that can accomplish just about any renovation project your heart desires.

Now that you’re pre qualified and you know who is completing the renovations, it’s time to go shopping. When you find a property it’s a great idea to have your contractor walk it through you so you can have a clear idea of what the renovation projection is before you make an offer. Renovation loans take about 40 days to close so some listing agents and sellers may be leary of renovation loans, but Brandon and his team work directly with listing agents to make sure they have all the facts and can reassure them on the process. 

Once you’ve got the home under contract, your contractor will need to move forward quickly to formalize the estimate for the renovation. Typically they include a 10% reserve for any unexpected expenses that normally come up during renovations. This has to be detailed out and finalized to be provided to the appraiser prior to close of escrow. The appraiser will use this to determine a projected completed value which is the amount they are predicting the home will be worth after the renovations take place. 

Time to close the deal and get to work. Closing happens just like any other home purchase, but also comes with an initial draw paid to your contract for purchasing materials for the project. Throughout the renovations your contractor will request draws from the loan to continue to fund the project. The project must be completed within 9 months of closing. When all the projects are done, the appraiser returns to the property to validate that all the renovations were completed and the home meets or exceeds the estimated completed value.

Viola, your newly renovated home is ready for you!

I hope you enjoyed learning about renovation loans as much as I did. Thanks to Brandon for answering all my questions! If you have any more questions on if a renovation loan is right for you, Brandon and I would be happy to sit down with you to discuss your scenario. 

Lindsay Fricks, Helping you, your family and friends Live & Love in Arizona