How do Renovation Loans work?
Annette Bui | Updated July 05, 2020 | Mortgage Programs 101
The purpose of renovation loans or 203k is that it allows both homeowners and homebuyers to build the cost of doing a rehabilitation project on a house and roll it into the mortgage. The benefit of this program is that it makes the upgrade process more affordable without having to incur expensive credit card interest and maxing out your debts. You can finance the cost into your mortgage at a lower interest and have a fixed payment. Additionally, the projected renovation updates will improve the value of the collateral and better secures the lender's position. This is designed to help save both time and money for homeowners to gain access to more prospective homes rather than be limited to the homes already in good condition.
How can a Renovation Loan be used?
The scope of the rehabilitation loan covers expenses of a minimum of $5,000 in costs and up and can be used for virtually any upgrades to improve the home down to as much as getting it partially demolished or razed as part of the rehabilitation as long as the current foundation is in its original place. Furthermore, rehab loans may extend to the costs to convert the property to a one to four-unit home.
The next step to finding out if a renovation loan is a good option for you is to assess what upgrades you may need and reach out to Annette’s team to see how much you can get preapproved for. As part of our promise to clients, we believe that homeownership is an ongoing process that not only entails the initial process of acquiring your home but also building the perpetual relationship so we can always be available for your annual financial assessment or provide any guidance, educate and collaborate with our clients.