A renovation loan, or FHA 203k renovation loan, is a great tool for buying a home that needs some repairs or improvements to raise the value of the home. Renovation loans allow buyers to incorporate renovation costs into the mortgage in order to improve the home and raise its value immediately, rather than waiting to renovate years down the road. In addition, this can save money in comparison to a second mortgage or use credit cards to make improvements. When shopping for a lender, what questions do you need to ask when considering a renovation loan, or FHA 203k renovation loan?
How Experienced Is the Lender?
How many renovation loans has the lender done in the past? There are many moving parts to a renovation loan: you have to approve the situation, know the timing of everything, and know what is allowable under the terms of the loan. Hiring an expert that has done lots of renovation loans is essential to making sure things go smoothly.
What Type of Loans Does the Lender Offer?
Many loan officers offer the FHA 203k renovation loan, but only offer the streamlined version. This means that the lender only can incorporate up to $35,000 in repairs. However, other lenders have the capability to do more – up to $100,000 or whatever is needed in order to improve the home, with the involvement of a consultant. If the lender only offers the streamlined version, you may run into problems by starting the process and realizing that the home may need more work than you expected. Do the lenders offer the conventional home-style version of renovation loans? In some cases, this is the best way to go, and a lender that is well versed in all these types of renovation loans is the best way to go.
Who Will Underwrite the Loan?
If you are going to start a renovation loan, make sure your lender and the underwriting company is familiar with this style of a loan. If everything is in-house, it will make your life easier since the whole process is simpler.
What is the Timeframe?
Many lenders do renovation loans on a 90-day timeframe. In many cases, a shorter timeframe is needed for buyers to purchase the home and do renovations in order to move into the property. A lender that is capable of setting up loans on a shorter timeframe, if needed, is a great option for the buyer.
How Is the Money Dispersed?
If you’re looking at a brokered loan, no money is typically dispersed at the closing, and the money is dispersed 30-60 days after the closing before you can start renovations. If you choose a lender where everything is in-house, the lender can be more flexible with dispersing the money. For instance, with a streamlined renovation loan, the lender might disperse 50% of the renovation money at closing, with the rest after renovations are completed. With a bigger renovation (consultant renovation loan), often there are four draws after closing, with the first draw about two weeks after closing.
You want to be comfortable that you will have a smooth lending process, and the more questions you ask your lender, the better. If you have any questions, contact Pete Thompson, your Chicago area mortgage guy, at (630) 481-7188 or at www.PeterThompson.team.
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