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Home Renovation Loans: Where to Start

By the end of 2017, expect the 20 year fixed-rate mortgage to rise to 4.6%, with 15-year fixed mortgage rates at 3.8% – Source: Federal Reserve, Open Market Committee

You’ve read the headlines. Now might be a wise time to get that home loan underway. When you are considering building an addition or undertaking a major renovation, education is the key to making it happen.  You need the right loan and the right, qualified builder who understands how to work through the complexities of the loan.

Typical costs and fees on a $250,000 loan 

Item Cost
Purchase price $200,000
Rehabilitation $50,000
Mortgage after 3.5% down payment $241,250
Mortgage rate 4%
Up-front mortgage insurance premium $4,221.88
Total mortgage principal $245,471.88
Monthly mortgage insurance $173.88
Total monthly payment $1,345.80
Source: calculations  

Show Me the Money

Many people dreaming of a home renovation or addition will apply for a HELOC (Home Equity Line of Credit) to improve the house. It is a loan, using your home as collateral, that lets you borrow up to a certain amount, rather than a set dollar amount. A HELOC (pronounced HE-lock) acts like a credit card: It has a credit limit, and you can borrow against it, pay all or part of the balance, and borrow again up to the credit limit. The interest rate varies with the prime rate. 

There are a lot of factors involved in getting your house to appraise high enough to even get the right amount of money for a major project.

We’ve found that small banks are best for these, because they use local appraisers who have a better understanding of your neighborhood.  They know that from one street to the next there can be a difference in value.

There are two types of appraisals: the walk-through and the desk appraisal. The walk-through is preferred if a project is close in costs since the appraiser can see the property and more accurately value it. The desk appraisal is basically an off-site evaluation of  real estate “comparables” and giving a value to your home.  

Of course many homeowners apply for a straight-up construction loan for their project. This is typically a short-term loan offered for a set term (usually around a year) to allow you the time to build.

At the end of the day, the vision you have for your addition or remodel must be supported with the right financing. You need not go through the process alone. An experienced builder will understand how to navigate the bank paperwork.

Connect with a Pro

Because we have been building in the area for many years, we are on the “Approved Builder List” of a variety of banks. We are happy to provide this to home owners.

Wondering what you can do with your house? Contact us today for a free design consultation