If you have purchased an older home that you are now hoping to improve upon through money taken out in a refinancing, then you might be an ideal candidate for a renovation refinance loan. If you wish to sell your home someday, but right now it requires several important renovations in order to command the selling price you need or desire (or, in extreme cases, in order to sell at all) then refinance and renovation loans might well be worth looking into. If you live in a neighborhood of increasing value while you’re house is flat-lining (in other words: if yours is the worst house in the best neighborhood, so to speak) then you too could benefit from a renovation refinance loan.
What Are Renovation Refinance Loans?
Just like they sound, refinance renovation loans are home refinancing loans made for the purpose of taking out equity in the home to use specifically for renovations of that home.
Pros & Cons Of Refinance And Renovation Loans
There is one significant advantage and one significant drawback to renovation mortgage financing.
The advantage is delayed interest. You get six months interest-free before having to pay any interest on the loan. That means for the first six months of the loan, often the most critical for a borrower involved in a home renovation project, you are relieved of making interest payments. Of course you don’t get away with not paying those six months of interest at all. That amount is simply amortized out into the rest of the loan.
The drawback is that refinance renovation loans come with higher interest rates than other purchase mortgage and refinance loans. This is to cover the extra risk incurred by the lender for making such a loan.
How Is The Size Of the Loans Calculated?
Lenders determine how big of a refinance renovation loan to offer by figuring out the expected value your home will have in the future (or its projected value) upon completion of the renovations.
Requirements For Getting A Refinance And Renovation Loan
In order to qualify for a refinance renovation loan, the lender will require you furnish them with the complete architectural blueprints and other plans to your renovation. The lenders will use this information to determine if the renovations you play to make to the home justify the size of the renovation refinance loan you’re asking for.
The other significant requirement for getting (and keeping) renovation mortgage financing is passing six separate inspections of the home’s progress at various stages of the renovation. The lender will divide up payment to the borrower of the total loan amount into six individual installments. At each stage of the project’s development the lender will need to see acceptable proof that a certain part of the work is completed before the lender will issue the next installment of funds.
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