Renovation Resources

After you have received your construction drawings and your cost estimate, you may have to go to a bank or lending institution to recieve financing for your project (unless it’s owner financed).

If this is so, you have two separate options you may consider. The first would be to go to your local bank and talk to the lending advisor. This option is somewhat confining, because they are limited to only showing you their specific lines of credit. You may also want to talk to a mortgage broker. These brokers have a large variety of different lending institutions they may choose from, resulting in a loan package more individually suited for your specific needs.

Within both of these options there are different types of loans. If you already own the home, you may choose to either refinance your current loan, or take out a second mortgage. If you choose to refinance, you can refinance your current mortgage to take cash out for the remodel or the updating of your home. You can borrow up to 90% of the current value of your home. The closing costs are wrapped into the loan amount (you do not have to pay the costs in cash). There is always a one-month delay before your first payment comes due on the new mortgage. With rates so low, this could be an attractive option as you would receive cash for your remodel and possibly get lower payments.

If you choose to take out a second mortgage you would continue to pay your first or current mortgage and make payments for your second. You can obtain a fixed rate second mortgage for a certain amount (under most circumstances you can borrow up to 100% of your equity) and you will begin making payments one month after the closing of this second loan. This type of loan is tax deductible.

You can also take out a home equity line of credit. You get pre-approved for a line of credit for a certain amount (under most circumstances you can borrow up to 100% of your equity) and you receive checks to take money from the line of credit. The advantage of this program is you do not owe any interest or payments until you need the money. At the time you borrow the money you would receive a billing the following month for interest only payments (you can make higher payments if you wish, interest is the only minimum required). Depending on the amount of equity used will determine if you pay anything over the prime rate to borrow the money. After five years the minimum required payments would be based on a fifteen-year loan so that your mortgage would begin to pay off. The home equity line of credit is tax deductible.

If you own the land and want to build a home on it, there is a new construction loan offered. One type is called a "one time closing"; it is a combination of a construction loan and the permanent financing. The "one time close" is available to borrowers who have an agreement with an "approved" General Contractor/Builder to build their 1-4 family personal residence. Primary or secondary homes qualify for this program; the borrower must have put down a minimum 5% (either in cash or in equity they have in the land being built on). During the construction period (usually six months) the borrower would be charged prime plus 1.5%, interest only payments, based on the total draws taken during the building of the home.

Draws are based on percentage of completion of the building and are usually taken once a month. When the home is within sixty days of completion, the Permanent Mortgage interest rate can be locked in under many different and various programs. (i.e. fixed rate mortgage, adjustable rate mortgages etc.). There are no additional closing costs charged at this time for the Permanent loan.

These are just a few of the programs available to you, so you should contact your local bank or mortgage broker for additional information.