Renovation Home Loan

What Is A Renovation Refinance Loan?

A refinance renovation loan allows you to roll your current mortgage payoff and the cost of renovations into a single loan. These specialized loans can help you modernize, repair, or improve your home without taking on a separate home improvement loan. JVM Lending offers a variety of refinance renovation loan options to fit your needs.

Interested in learning about a specific type of Renovation Loan? Use the links below to jump ahead to its section:

FHA 203k Renovation Loans

Conventional Renovation Loans

VA Renovation Loans

Why Choose  A Renovation Home Loan?

Core Benefits:

– Streamlined Financing: Cover the cost of both the home refinance and the renovation in a single loan, making financial planning easier.

– Quick Equity Building: Renovating your home often increases its value, allowing you to build equity faster than with a traditional refinance.

– Flexible Property Types: From single-family residences to 2-4 unit properties, renovation loans offer a wide range of eligible property types.

– Personalized Home: Customize your new home to meet your specific needs, from essential structural repairs to luxury upgrades like swimming pools.

Eligibility Requirements:

– Credit Score: A minimum FICO score of 620 is generally required.

– Occupancy: Most programs require the property to be your primary residence.

– Contingency Reserve: A minimum of 10% is often required, which can go up to 20% based on the property’s condition.

In-Depth Look at Different Renovation Refinance Loan Program Guidelines

FHA 203k Limited

• Program Type: Government
• Structural Repairs: Not allowed
• Maximum Repair Amount: $75k max, including fees & contingency

Detailed Overview:

The FHA 203k Limited loan is ideal for making non-structural repairs such as cosmetic updates, appliance upgrades, or minor landscaping. However, luxury items like swimming pools are not allowed. The program allows for two draws, with 50% of the repair amount provided at closing and the remaining 50% after all repairs are complete.

FHA 203k Standard

• Program Type: Government
• Structural Repairs: Allowed
• Minimum Repair Amount: $5k

Detailed Overview:

The FHA 203k Standard loan is more versatile than its Limited counterpart, allowing for structural repairs like foundation work or room additions. This loan also allows for up to five draws, making it easier to manage larger projects. Material draws are allowed, and there’s a minimum repair amount of $5,000, making it suitable for more extensive renovations.

Fannie Mae® HomeStyle®

• Program Type: Conventional
• Structural Repairs: Allowed
• Luxury Items: Allowed*

Detailed Overview:

The Fannie Mae® HomeStyle® loan is a conventional renovation loan that offers the most flexibility. Not only can you make structural repairs, but you can also include luxury items like swimming pools or outdoor kitchens. The loan can be used for primary residences, second homes, and even investment properties. Up to five draws are allowed, and materials draws are permitted.

*Luxury items can include but are not limited to pools, pool houses, built-in hot tubs and outdoor living areas. Freestanding ADU’s and buildings may be allowed, see guidelines for more details. County limits apply.

Freddie Mac CHOICERenovation®

• Program Type: Conventional
• Structural Repairs: Allowed
• Luxury Items: Allowed*

Detailed Overview:

Similar to the Fannie Mae® HomeStyle®, the Freddie Mac CHOICERenovation® loan offers a lot of flexibility but can be combined with the Home Possible® program for added benefits. This loan allows for structural repairs and luxury items, making it one of the most versatile options. Up to five draws are allowed, and materials draws are permitted.

*Luxury items can include but are not limited to pools, pool houses, built-in hot tubs and outdoor living areas. Freestanding ADU’s and buildings may be allowed, see guidelines for more details. County limits apply.

VA Renovation

• Program Type: Government
• Luxury Items: Allowed*
• Structural Repairs: Minor Structural Repairs Allowed

Detailed Overview:

The VA Renovation loan is exclusively for veterans and allows for minor structural repairs. Up to three draws are allowed, and while material draws are not permitted, the maximum repair amount is $50,000, including fees and contingency.

*Luxury items can include but are not limited to pools, pool houses, built-in hot tubs and outdoor living areas. Freestanding ADU’s and buildings may be allowed, see guidelines for more details. County limits apply.

What’s The Difference Between a Renovation Loan and a Home Equity Loan?

When it comes to financing home improvements, both renovation home loans and home equity loans are popular options. However, they serve different needs and come with their own sets of rules and benefits. Understanding the key differences can help you choose the right financing option for your situation.

Refinance renovation loans combine your mortgage payoff and renovation funds into a single new loan, based on the after-renovation value of your home.

Meanwhile, Home Equity Loans are aimed at homeowners who already have equity in their existing homes. The loan allows you to borrow against that equity to fund home improvements, consolidate debt, or for other purposes.

Pros and Cons of Renovation Refinance Loans

When considering a renovation home loan, it’s essential to weigh the advantages and disadvantages to determine if it’s the right fit for your situation. Here’s a breakdown of the pros and cons to help you make an informed decision.

Pros:

One-Stop Financing: Renovation home loans allow you to bundle the cost of the home and the renovation into a single loan. This simplifies your financial planning and can make the entire process more manageable.

Instant Equity: By financing your renovations through the loan, you can immediately increase the value of your home, thereby building equity more quickly than you would with a traditional refinance.

Customization: These loans give you the freedom to customize your home to your liking, whether that means essential structural repairs or luxury upgrades like a swimming pool.

Flexible Property Choices: Renovation loans open up a broader range of potential properties to consider.

Potential Cost Savings: In some cases, it might be more cost-effective to renovate an existing home than to buy a home that already has the features you want.

Various Loan Options: With multiple types of renovation loans available, from government-backed options like FHA 203k and VA Renovation to conventional options like Fannie Mae® HomeStyle®, you can likely find a loan that fits your needs.

Cons:

Complexity: Renovation loans are more complex than standard refinances. They often require additional steps, such as multiple appraisals and inspections, and the involvement of a HUD Consultant for some loan types.

Higher Interest Rates: Renovation loans can sometimes come with slightly higher interest rates than traditional refinance loans, increasing your long-term costs.

Stricter Requirements: These loans often have more stringent eligibility requirements.

Risk of Over-improvement: There’s always a risk that you might over-improve your home, making it more expensive than the average property in your neighborhood. This could make it harder to sell later on.

Budget Overruns: Renovation projects are notorious for going over budget.

FAQs About Renovation Refinance Loans

What types of properties are eligible for renovation loans?

Various types of properties are eligible, including single-family residences, 2-4 unit properties, condos, and even some manufactured homes. The specific types of eligible properties can vary depending on the loan program.

Can I use a renovation loan for luxury items like a swimming pool?

It depends on the loan program. For example, Fannie Mae® HomeStyle® and Freddie Mac CHOICERenovation® loans allow for luxury items like swimming pools. However, government-backed loans like FHA 203k  loans do not.

What is the minimum credit score required for a renovation loan?

The minimum FICO score generally required for most renovation loans is 620. However, eligibility requirements can vary between loan programs.

How many draws can I take for my renovation project?

The number of draws varies by loan type. For instance, FHA 203k Limited allows for 2 draws maximum, while the Fannie Mae® HomeStyle® and Freddie Mac CHOICERenovation® allow for up to 5 draws.

What is a “draw” in a Renovation Loan?

A draw in the context of a renovation loan refers to the portion of the loan amount that is disbursed to cover specific stages of the home improvement project. These funds are released after each phase is completed and inspected. The number of allowed draws varies by loan type and helps manage cash flow, ensuring contractors are paid and work progresses as planned.

What is a contingency reserve?

A contingency reserve is an additional amount of money set aside to cover unexpected costs during the renovation. The reserve is generally between 10% to 20% of the total renovation cost, depending on the loan program and the condition of the property.

Can I do the renovations myself?

Most loan programs require the work to be done by a qualified contractor. However, some programs may allow for a “self-help” option where the homeowner can do some of the work themselves, under specific guidelines.

How Do I Get Started With A Renovation Loan?

To kickstart your renovation journey, reach out to JVM Lending’s experts. We’ll review your eligibility, help choose the best program, and guide you through the process from application to project completion.

If you have more questions or need further clarification, don’t hesitate to contact us at (855) 855-4491 or hello@jvmlending.com. We’re here to help you unlock the home of your dreams!