Home Buying in Phoenix>Question Details

terencecobb, Home Buyer in Phoenix, AZ

How does a renovation mortgage work?

Asked by terencecobb, Phoenix, AZ Mon Oct 14, 2013

Help the community by answering this question:


Home renovation mortgage programs that allow buyers to borrow based on what the house is expected to be worth after the home rehab is completed. Homeowners can also use these programs to refinance their existing mortgage plus the renovation costs into one loan. Unlike credit lines, these renovation loans require borrowers to show the money was spent on the house. In the standard programs, the borrower hires a consultant to assess the construction plan and to perform an inspection before each draw is made. A "draw" happens when a portion of the money is disbursed to the contractor. Borrowers have up to six months to finish the project and are allowed up to five draws. The HomeStyle program does not require a consultant to monitor the work, only an initial and final inspection. Overall, this can be a complex mortgage to understand and choose. I recommend speaking directly with a lender like myself to help you get a better understanding of this type of mortgage and to show you the different options you have. I would be glad to speak with you to help you get the loan that you need. Good Luck! Brian Nguyen Sr. Mortgage Banker NMLS # 659743 Phone: 949.667.2887 brian.nguyen@nafinc.com
0 votes Thank Flag Link Fri Feb 14, 2014
We did a home renovation in Seattle a few years back. We got lucky, though, and ended up having enough saved up so that we didn't need a loan. I don't think that is very common, though.
Web Reference: http://www.cascadebuild.com
0 votes Thank Flag Link Wed Nov 27, 2013
hello terence

give me a call or email me and lets talk about it , i work with lender that do all the renovation loans available , done my share of them as a lender and as a Realtor so i can help you

have a great day
0 votes Thank Flag Link Tue Oct 15, 2013
how would this work im thinking of selling my current home and using the equity to remodel a house i am considering buying. Its 150 but the entire house looks like it needs to be gutted and redone outside included. which would leave me with anout 90 to 100 k to work with but no down payment on the house
Flag Tue Oct 13, 2015
We have a few different ways to approach work to be completed, the first way is to get the seller contractually obligated to complete the work. We can use the FHA program as described below, in certain situations we can do escrow holdbacks and we also have the Homepath program.

You might have choices, lots depends on your strength, credit, the property, the work etc.
0 votes Thank Flag Link Mon Oct 14, 2013
See Troy's answer below. This is probably the most comprehensive answer. In short, you should contract a mortgage broker to have that question answered. Real Estate Agents are not mortgage brokers and it would not be in your best interest for me to try to answer your question. Thank you.
0 votes Thank Flag Link Mon Oct 14, 2013
In short, you buy a house and the money needed to repair the house is put in escrow to pay the contractors doing the work.

Easiest way to explain is with an example:

House priced at $200k
Repairs estimate of $10k
The purchase price will be $210k. The seller receives $200k and the $10k different is put in escrow.

Things to remember:

1 - the house has to appraise for the $210k after repairs.
2 - the $10k will be released directly to the contractor(s) doing the work.
3 - borrower to obtain the repair estimates during the loan approval process.

I hope this helps.

Good luck!
0 votes Thank Flag Link Mon Oct 14, 2013

It is also Best if you use a Lender that have several Contractors that has done this type of Loan before as the Contractor does not get paid until after you have Closed Escrow. I have several Lenders with Contractors that are very experienced, please let m eknow if you would like there information.

Have a GREAT day!

Vivien L Biggs, PLC
Prudential Arizona Properties
0 votes Thank Flag Link Mon Oct 14, 2013
Troy has given an excellent answer.
0 votes Thank Flag Link Mon Oct 14, 2013
There are great explanations below. I have assisted buyers working with a rehabilitation loan and I am very familiar myself. If you have additional questions just give me a call I am happy to discuss them with you. Tiffany : )

Tiffany Carlson
Associate Broker
Realty One Group
Cell: 480-215-1105
Fax: 480-302-5885

Awarded one of the Top 40 Agent’s Under 40 in 2013
0 votes Thank Flag Link Mon Oct 14, 2013
Have you spoken directly with a lender about this?
0 votes Thank Flag Link Mon Oct 14, 2013
Hello Terence. I agree with everything Troy stated below, great job Troy!

I would also add a couple of things...

If you're talking about an FHA 203(k) loan, then the work MUST be done by an ROC licensed contractor and not yourself or your friends/family (unless their ROC licensed of course).
That's why it's sometimes best to use a general contractor for the work as he/she can then 'sub' out some of the work under their license if they cannot do it themselves. I have an excellent general contractor who has done a LOT of renovations and rehabs for my clients over the past few years. He's also done a couple of the FHA 203(k) rehab properties and can provide the bids that the lender needs to approve the loan.

Typically these loans needs a bit more time to close depending on the lender (maybe an extra week or two) but that's not usually a problem unless the seller won't allow the extra time.

With this type of loan, there is admittedly more work for the buyer and seller and their respective agents (as well as your lender), but it can be a great way to 'finance' the needed repairs to allow you to purchase a home.

First things first, you'll want to get pre-approved with a lender before you begin shopping for a home. I have some excellent local lenders that I've worked with for several years; just send me an email and I'd be more than happy to provide their info.

Also, keep in mind, if you're gonna go with that FHA 203(k) loan or just a regular FHA loan, you'll need the down payment (3.5% of the purchase price) AND funds to cover your closing costs (typically around 3-4%, depending on the purchase price). Some of those closing costs can be paid by the seller IF you're able to negotiate that into the contract.

Once you're pre-approved for a new home loan, then you can begin previewing homes. I'd love to help you find a great home here in Phoenix! (FYI...the fee to use a buyer's agent to help you find a home is paid by the SELLER, not YOU, the buyer. Your fees include things like title/escrow fees, lender fees, inspection fees, etc).

Check out my Trulia profile at: http://www.trulia.com/profile/jimmitchell/ . I've helped several buyers find homes here in the Valley for over 8 years.

Thanks for the question!

Jim Mitchell
Realty ONE Group
PH: 480.231.6769
0 votes Thank Flag Link Mon Oct 14, 2013
If you need a Realtor , I would be more than happy to show you some homes, Thanks
Phone 623-313-6492 or E-mail jprealhomes4u@yahoo.com
0 votes Thank Flag Link Mon Oct 14, 2013
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