Getting a Construction Loan for Remodeling
Many homeowners are looking to expand or improve their current home rather than move and buy another. Concerns about economic conditions, coupled with an environment of low rates makes remodeling an attractive option. A loan may be necessary for the financing. Even if you do have the funds available, you may want to leverage the cost with a construction loan, rather than tie up your cash and savings. There are several loan options available at finance.yahoo.com/news/announcing-online-bad-credit-quick-040000419.html
, depending on the scope of your planned remodeling project.
A major project generally involves a change in the shape or size of your home. There is a greater cost involved, so requirements for loan qualification are a bit more complex. It may be important to understand the various terms and aspects of the project and your financial situation that a lender will take into consideration. Here are a few:
Loan to Cost (LTC)—A ratio used to calculate the percentage a lender is willing to finance based on the actual cost of the construction.
Loan to Value (LTV)—A ratio used to calculate the percentage a lender is willing to finance based on the appraised value of the subject property. Most lenders will consider the future estimated value of the property after the project is completed.
Debt to Income—Current total monthly debt payments divided by your gross monthly income. Used by lenders to determine your ability to handle the payments on your new loan.
You may want to contact a lender before undertaking any significant preliminary planning or investigation on your project, such as creating contracts with builders, architects and or designers. Often a lender will have helpful suggestions for next steps, and help you determine feasibility and if the project can be funded through a construction loan.
Minor Rehab or Remodel
Simpler remodeling projects would not involve a change in the overall size or shape of the home. Minor refinements, cosmetic repairs, roofing, termite treatment, new windows, an upgrade in the heating and air conditioning, etc., might be all that is wanted or necessary.
- FHA 203K Loans
An FHA 203k loan is a loan backed by the federal government (Federal Housing Administration) and is available to buyers who want to buy an older or damaged home and do the necessary repairs. Here’s how it works: Let’s say you want to buy a home that requires new bathrooms and an upgraded kitchen. An FHA 203k lender could finance the project, and possibly refinance the cost of the house along with funding for the renovations into one loan so get investment advice now. Loan limits will apply, depending on the size of the project and the nature of the required repairs.
The projected rehabilitation cost is held in escrow and paid out as each portion of the project is completed. The loan is approved for the lower of the projected market value after repairs, or the purchase price plus the cost of the renovation.
- To get an FHA 203k loan, you must work with an FHA-approved lender.
- You will also need to provide a detailed proposal of the planned project.