Obtaining a Mortgage for Home Renovations
Obtaining a mortgage for a property that’s not up to standard or obtaining financing for your own home renovations based on the equity already in the home is a fairly standard procedure.
However, depending on how extensive the renovations are and how much you’re asking to borrow, you may need to provide a number of additional documents to obtain that loan at prevailing mortgage rates. For more information on what’s needed for a renovation mortgage, keep reading.
Purchase and Renovate?
If you’re planning to purchase and renovate the same home and use your financing to complete both tasks, you’ll need a thorough appraisal. Typically, with a purchase and renovation mortgage, your total mortgage is based on the estimated value of the property after you complete the renovations.
Because the lender is essentially counting on the quality and completion of the renovations, you will typically need to supply full plans, a complete budget, assessment of your own skills and that of your contractor, and so forth.
Wells Fargo (wellsfargo.com) offers a popular purchase and renovate mortgage that allows homeowners to get the money they need for their house and renovations with just one loan application and one low, monthly payment.
Refinancing or Home Equity Lines of Credit?
If your home is either already paid off or mostly so, you can save money by financing your renovations either through a second mortgage or a home equity line of credit.
Because the total amount of the loan or credit line is based on the value of your home at present, you can avoid having to provide documentation and ongoing progress reports about your renovations. Many homeowners choose this option because of the ease of the application process, lack of qualification requirements and flexibility of use.
Separate Renovations Financing
Depending on your home mortgage lender, you may need to obtain separate renovations financing. If the value of the loan is to be based on the value of the home after the renovations are completed, you’ll need to provide proof of the property appreciating in value.
Otherwise, you may need to apply for a smaller, unsecured loan like a personal line of credit or even a credit card. Remember though, credit cards are going to cost a lot in interest, so try to keep their use to a minimum.
In short, there are a number of financing options available to anyone looking to either renovate their existing home or buy a house to fix it up.
Posted by Carlos Sagastume on March 23, 2009. Filed under HUD Homes.
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