Renovation Refinance: Setting Your Budget and Building Your Team

Posted On April 05, 2018

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With low housing inventory creating a competitive housing market, some homeowners are opting the renovation route to turn the house they like into the home they love.  Refinancing with a renovation loan can help homeowners finance home improvements without taking on additional high-cost lines of credit.  Purchasing a home with a renovation loan can help potential home buyers expand their search and, in some cases, pay less for a fixer-upper to customize, compared to a move-in ready home.  Before considering a renovation loan, it is best to weigh your options, set a budget, and build the right renovation team.

Is renovation right for you?

Renovation loans are available to homeowners looking to upgrade their current home or home buyers shopping for a home in need of repair or remodel.  Renovation loans combine the cost of mortgage financing with the expected cost of the renovation into one monthly mortgage payment.  In many circumstances, a renovation loan will carry a lower interest rate than a personal loan or credit card.  For homeowners, a renovation refinance may be the perfect solution to upgrade their current home rather than moving, especially if they like their neighborhood and would like to avoid shopping in a competitive market.  For home buyers, buying with a renovation loan could allow them to expand their search to fixer-uppers and homes in need of repair, and finance the exact remodel they want. 

Setting a Budget

With most renovation loans, a home inspection will determine the cost of the needed repair and remodel.  Many different projects may qualify for renovation financing including required repairs like roof replacement, mold remediation, and foundation repair, or optional repairs like room addition, kitchen remodel, or energy efficiency upgrades.  Real estate professionals suggest renovation projects be proportionate with the value of the home.  For example, a kitchen makes up 10% to 15% of the home’s value.  So, a kitchen remodel on a $200,000 home should not exceed $30,000.  Renovation loan restrictions vary from lender to lender and from project to project.  Before pursuing renovation financing, the homeowner or home buyer should get an appraisal on the value of the home and the expected cost on the project.

Building a Renovation Team

Most renovation loans require a licensed contractor to complete the renovation project.  Depending on the type of loan and the lender these restrictions may vary.  Once the needed project has been established and estimated, the homeowner or home buyer can start building their renovation team.  Ask a real estate professional for recommendations!  Chances are an established real estate agent or lender has clients who have worked with reputable contractors and construction services before.  A lousy contractor can quickly turn a simple remodel into a more complicated repair. 

The biggest challenge home buyers are expected to face in 2018 is limited housing inventory.  With demand outpacing supply, home prices are on the rise and many sellers are receiving multiple offers on a home.  Renovation financing is a great option for homeowners in need of an upgrade, or home buyers needing to expand their search market.  Through a renovation refinance, homeowners can stay in their home and finance needed repairs.  Using a renovation loan for a new purchase allows some home buyers to save on the purchase price with a more affordable home plus finance remodeling and upgrades into the cost.  Before deciding if renovation financing is right for your situation, it is best to consult a mortgage professional. 


Sources: Zillow, Zillow, Zillow