Introducing Renofi Loans: An Alternative To Renovation Mortgages
We want to introduce you to RenoFi Loans an alternative to combining the costs of your renovation into a second mortgage that we think youll want to know about.
A RenoFi Loan is a new type of home renovation loan that combines the best bits of a construction loan with a home equity loan. Lets make one thing clear though this is a second mortgage and cannot be used to pay for the purchase of a property and a remodel in a single loan.
But hear us out
This new type of home renovation loan allows you to borrow based on your homes after renovation value. Thats what itll be worth once your renovation has been completed, acknowledging that when you make improvements to your home, its value usually increases.
And for this reason, it can be a solution for those wanting to borrow the money thats needed to renovate but dont have enough equity available to tap into to use a home equity loan or home equity line of credit, either because theyve not yet bought it or because theyve only recently done so.
Using a RenoFi Loan can increase your borrowing power by up to 11x when compared with a traditional home equity loan, making it easier for you to borrow all of the money thats needed.
Want to learn more? Check out RenoFis How It Works page.
Quite simply, a RenoFi Loan allows you to purchase your new home with a traditional mortgage and finance your renovation when youre ready, rather than being limited by the options that let you add renovation costs to your mortgage.
Can A Mortgage Include Renovation Costs Uk Homeowners Guide
Construction expert and founder of Loftera.
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Despite a difficult 2020 for the financial industry, the demand for mortgages in the UK rose to a 13 year high as the number of people wanting home loans continued to boom.
Bank of England figures proved that there we close to 100,000 loans approved by lenders in October 2020 alone, and the figures show no sign of slowing down just yet with stamp duty now abolished for first time buyers.
Many of those buyers will be hoping to spruce up their new properties as well, which leads us to the question can a mortgage include renovation costs in the UK?.
The answer is far from straightforward, which is why weve put together this guide to answer that all important home owning question.
The Bottom Line: A Purchase And Renovate Loan Can Make Your Dream House A Reality
Often, home renovations are put on the back burner because of how much cash is needed to complete the repairs. A renovation loan gives home buyers an opportunity to revitalize old and distressed properties while rolling project costs into the rock bottom interest rate of a mortgage.
In the end, a home that may be overlooked gets saved, a homeowner is able to buy a propertyand increase the home value immediately, and a fixer-upper has a chance to compete in a tight real estate market.
Get approved to refinance.
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Fannie Mae Homestyle Renovation Loan
Fannie Maes HomeStyle® Renovation Mortgage is a conventional fixer-upper loan. The program allows homebuyers and existing homeowners to combine a home purchase or refinance with the cost of renovations upfront in a single loan.
Loan amounts for the HomeStyle remodel loan are based on either the purchase price of the home, along with the cost of renovations, or the expected value of the property once renovations are completed.
Because this is a conventional rehab loan, homebuyers finance their home directly with private banks or mortgage companies that offer this product, and Fannie Mae purchases the loans from lenders.
|Fannie Mae HomeStyle® Renovation loan features|
|Up to 97% LTV depending on the property type|
Why Homeowners & Homebuyers Want To Add Renovation Costs To Their Mortgage
A home renovation project can be expensive. In fact, its not uncommon for it to cost $100k or more to work through an entire wishlist of projects, and this means that theres often a need to look at financing options to cover this cost.
But before we dive deeper into the different options available, lets first look at the reasons why both homebuyers and homeowners often want to add renovation costs to their mortgage, rather than taking out a second mortgage such as a home equity loan or home equity line of credit or taking out a personal loan.
And to do this, lets be clear on the different scenarios in which this option is being explored:
- Homebuyers: Youve found a fixer-upper that you can see huge potential in, but need to borrow the money to renovate the house alongside the money to purchase the property to turn it into your dream home.
- Homeowners: You love where you live, but youve got a wishlist of projects that youre eager to get started on. Whether thats your bathroom, kitchen or a larger project like the build of an inground pool or an ADU, you need to find the best way to finance your renovation and are looking for the best option to make this happen.
But why is there often a wish to add renovation costs onto a mortgage, rather than taking out a separate loan?
We can break this down into a few common reasons:
You do have another option, though RenoFi Loans. Well introduce you to these shortly.
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Home Equity Loan Forrenovation
Home equity means thevalue of money that is in excess of what you owe on the mortgage. This meansthat the value of the house is greater than what you have left to pay on themortgage. This difference is called Home equity. The lender can provide youwith this difference in the form of a Home equity loan. This loan can beutilised for any purpose. You can finance your Home renovation on the samemortgage through this form of equity. The Interest rate charged on this Homeequity is considerably lower as well. The property will be held mortgage untilyou pay off the entire loan amount.
Refinancing is anexcellent way to fund your home renovations if you want to do repairs on a houseyou already own. It is very simple to apply for a refinancing mortgage for yourproperty. In this case, you dont need to be residing in the property itself ifyou choose to go for major structural changes. You can also opt for an FHA203 refinancing as they will be able to provide up to 97% of the renovationcosts for your home.
How Does The 203 Loan Work
While the requirements for the borrower for regular FHA loans and 203 loans are the same, the appraisal process is different.
- Two values are assigned to the property an as-is value, and an after-improvement value that takes into account the planned repairs.
- Your final loan amount is derived from the after-improvement value.
- The property then closes escrow in as-is condition with no money up front.
- At this point, the lender typically has a list of planned repairs for the property.
- The renovation funds are then given in phases and draws or predetermined, scheduled amounts based on construction progress. In other words, the builder requests draws for each phase of new home construction.
The renovation Mortgage Loan Originators at HomeBridge are committed to providing personalized service to you. From helping you understand the difference between a home construction loan and home improvement loan to answering your questions, we can explain the program and how it can fit your needs.
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Construction To Permanent Mortgages
A construction to permanent mortgage allows you to borrow funds to pay for your construction. Once construction is complete and you move into the property, the lender will convert the loan into a permanent mortgage. This is a mortgage with a two-part loan. It starts out as an interest-only mortgage drawn down in stages which then converts to a regular mortgage when the build is finished.
Failing To Account For Extra Costs
Cost overruns are another pitfall to avoid. When considering renovations, keep in mind that the total cost will probably involve more than just labor and materials. The total often includes fees for architectural and engineering services, inspections and permits, and potentially having to put up a contingency reserve of 10 percent.
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How Homestyle Renovation Mortgage Works
A renovation escrow account is set up under the HomeStyle Renovation Mortgage program to hold the portion of the loan set aside for repairs. The financial institution keeping the money pays for the renovations with a check written jointly to the buyer and the contractor. The escrow account accrues interest, and any leftover cash may be used for non-essential repairs or applied against the principal balance of the mortgage. Like FHA, Fannie Mae also requires inspections after each repair is completed before payment is issued. The HomeStyle Renovation Mortgage pays for repairs costing up to as much as half of what the home is expected to be worth after rehabilitation is completed. Da Costa, of Fox Business.com, says the FHA program approves borrowers with a credit score of 640 or more and requires as little as 3.5 percent as a down payment. In the same Fox Business article, from August 2011, da Costa quotes loan officer Leesa Sandoval, who said Fannie Mae prefers a credit score of 740 and 10 percent down.
Renovation Project Price Guide: Installing Heating
Upgrading your current heating system or replacing it with a new one can be daunting. Getting it right can massively improve your experience of living in your home, and potentially save you money on heating bills.
- Install an electric heat mat in your bathroom or en suite, around
- Buy an entry-level solid fuel stove with basic liner and have it installed, around 2,500.
- Retrofit a wet underfloor heating system in an average three-bed semi, around 3,200+. Ripping up and replacing existing flooring and adjusting door heights will add to the cost.
- Replacing all radiators and pipework, around 6,000-7,000. Standard radiators cost from upwards of 100 a piece to 400+ for something designer.
- Switch from oil to gas heating, around 8,000. Budget around 1,000 to connect to the network and 3,500 for a new gas boiler. Installation can be fairly disruptive and making good the mess to floors, walls and décor could add an extra 5,000.
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Alternatives To A Home Renovation Loan
If you have very healthy credit and a less expensive project in mind, you can use a credit card with a promotional no-interest period as an alternative to a full renovation loan. Isolating your project costs on a separate credit card will make it easier to keep those expenses separate from your usual spending, while a no-interest offer will minimize the cost of borrowing the money. Just remember that it can be easy to overspend with a credit card, so make sure youre confident you can use it responsibly and repay the balance quickly.
There’s also the cash-out refinancing option, which involves refinancing your current mortgage at a higher loan amount and using the extra cash for a renovation. This choice might make sense if you have at least 20% equity in the home, a good credit score and low interest rate options available in the market. Look carefully at current rates, lenders, and how much equity you have in your home before choosing to refinance.
The best choice for you will vary significantly depending on your situation. If you want to make home repairs on your new home right away, the lower rates and closing costs of a home renovation loan make the most sense. If youve already built up some equity in your home, you can take advantage of a strong market with a home equity loan to increase the value of your home. Credit lines or cash-out refinancing are worthwhile considerations when interest rates are low and your credit is healthy.
Freddie Mac Choicerenovation Loan
Like Fannie Maes remodel loan, the CHOICERenovation® Mortgage from Freddie Mac is a conventional loan for fixer-uppers. Homebuyers and homeowners can rehabilitate, renovate, repair or restore an existing home by combining a refinance or home purchase in a single mortgage.
CHOICERenovation® loan amounts are based on the expected value of the property once renovations are completed, or the total of the as-is purchase price and the estimated cost of renovations.
Borrowers can pair this fixer-upper home loan with some of Freddie Macs other mortgage programs, including Home Possible®. Like all conventional loans, borrowers finance the home directly with a private lender.
|Freddie Mac CHOICERenovation® loan features|
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Fannie Mae Homestyle Loan
You may have heard of Fannie Mae before. This is the government entity behind conventional loans. While Fannie Mae offers basic purchase mortgages, they also offer a loan called the HomeStyle loan. This loan provides up to 95% financing which includes the cost of renovating the property. The actual cost of the renovations cannot exceed 75% of the as improved value of the property. If you are a first-time homebuyer, though, you can borrow a total of 97% of the homes value.
Fannie Mae has the following requirements for the HomeStyle loan:
If there are any funds left after paying all contractors, the funds will pay the principal balance of your loan down. You cannot receive any cash in hand.
Refinancing For A Home Renovation
A renovation can renew your home or provide much-needed repairs, but it can be difficult to save up enough money for the project. Even if you have a significant amount tucked away for a rainy day, renovations are often more expensive than expected. Depleting your savings can leave you without emergency funds . A home refinance allows you to use the equity in your home to get the funds you need to help pay for your renovation.
Structural Works House Renovations
Structural works mean that something is being removed or added to the house, such as an extension. Unlike non-structural renovations, you will have to employ the service of an architect/engineer to oversee the works and approve the costings. Again, this to be included in the initial mortgage application. If planning permission is required, this needs to be in place or the lender needs to be made aware that you will be applying. Furthermore, you should be starting works within 6 months of initial mortgage drawdown.
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Can You Add Renovation Costs To A Mortgage
Homeowners have many different options when renovation costs exceed their savings, but they dont need to put off crucial work when they cant afford it right away. Lines of credit and credit cards are common options, though the often exorbitant interest rates make these tough choices. If you already have a mortgage, the last thing you probably want is another thing to pay off.
To avoid adding new avenues of debt to your life, there are several options you have when looking to work renovations into the mortgage, both for soon-to-be and existing homeowners.
Can You Borrow More On A Mortgage For Renovations
Renovating your home is an excellent way to make it more comfortable, improve the way it looks and increase its value. However, with the funds for home improvement not always readily available, many homeowners wonder can I borrow more money on my mortgage for home improvements?. So, as a leading home improvement specialist, we thought we would share our expertise on the subject.
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Renovation Project Price Guide: Installing A New Kitchen
When it comes to kitchens, theres often a huge gulf between budget and expectations, which is why careful pre-planning is essential. Start by consulting in great detail with your kitchen designer or architect.
- At the lower end of the kitchen cost scale, replacing doors and drawer fronts will cost from 30 each. Respray the units from just under 1,000.
- For an entry-level flat-pack kitchen complete with new appliances, splashback and worktops, expect to pay around 5,000.
- Installation can cost from 1,500+ depending on the size and complexity of the job.
- Classic profile laminate worktops start from around 140 per 4.1 m length. Expect to pay from 3,000 per linear metre for Carrara marble.
- A bespoke, handcrafted kitchen can cost from 40,000 upwards