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Finance How Renovation Concepts Can Help You
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Home equity loans
First mortgages – refinances
Purchase money first mortgages – Rehab/remodel and
demolition
As you can see, many options are available to you, depending on your loan needs and financial picture. Make sure you do not leave this type of financing up to inexperienced loan staff. For a streamlined, low-stress home financing experience, call me. Together, we will develop the best loan package for your personal situation.
Home equity loans
These are available as either Home Improvement Loans or Home Equity Lines
of Credit. Typically these loans are for no more than $500,000.
A home improvement loan may be appropriate, if you have a lot of equity in
your home and want to keep your existing first mortgage intact. This loan
cannot be for more than the current market value of your home* and is secured
via a second deed of trust to the bank. It is a fixed rate and term loan that
will fund all at once with equal monthly principal and interest payments starting
30 days after you close the loan. Typically, rates are higher for this type
of loan, but your loan payments will not change during the life of the loan
and the termination date of the loan is set. This type of loan offers almost
no options.
The home equity line of credit (aka, HELOC) may also be appropriate, if again
you have quite a lot of equity in your home. Like the home improvement loan,
this loan cannot be for more than the current market value of your home*.
This is where the similarities end. Just as the name of the loan states, it
is a line of credit that is secured by your home. This line can be accessed
at anytime, for any amount, up to the limit of the loan. The repayment style
can be principle and interest, or interest only. The draw period (the time
frame in which you can revolve the account) can range from 5–15 years.
At the end of that period, the loan must be paid in full (balloon), refinanced,
or re-amortized.
*Market value is established via an appraisal.
A cash-out first mortgage refinance of your first mortgage can be a good way to go as well, if you have enough equity in your home to cover the remodeling project. In the last few years, FNMA (Fannie Mae) and FHLMC (Freddie Mac) have made these loans a bit more conservative regarding lending guidelines. There are strict limits to the amount of the loan against the value of the house for cash-out purposes, but; if the amount of money you need falls within the guidelines, this can be a favorable option. There are many different ways to structure this type of lending program, including adjustable rate mortgages (ARMs), fixed rate mortgages (FRM’s), and combinations of first and second mortgages. If you choose this option, we will determine the best loan structure for you.
When you choose this style of financing, you receive all the loan proceeds (the cash) as a lump sum after the loan closing and your payments start 30–45 days later. These loans typically last 30 to 40 years, depending on the program chosen.
Purchase money first mortgages – Rehab/remodel and demolition
Using a purchase money rehab/remodel loan is the most streamlined way to purchase a home and fund the remodel/rehab project at the same time. This approach allows you to take a construction line at the beginning and when the project is done, roll the construction loan into a permanent mortgage of your choice. The remodeler uses the construction timeline to draw upon the funds during the construction phase. At closing, the initial draw will include the purchase price of the home and any additional fees needed to be paid via the remodeler. The complexity of your remodeling project will determine the construction timeline. While the construction is ongoing, there are options either to float the permanent mortgage rate or to fix the rate at the escrow closing. The decision is based on your particular financial situation when you complete the loan application.
Don’t forget – if you have equity in a home other than your residence, that additional equity can be used in combination with, or in lieu of, the equity in your primary residence.