By no means the most common of loan types leveraged for purchasing your new home, renovation financing is a highly valuable option for the right borrower looking for the right property. In its simplest form, a renovation loan provides the borrower with money for purchasing a property AND the funds for making improvements on the property before the borrower occupies the dwelling. In many cases, the improvements made are deemed necessary in order for the property to be considered “livable”. Examples include replacing drywall, flooring, electrical systems, HVAC, roofing, etc.
In those instances where renovation financing is pursued, it is typically because the subject property will not qualify for traditional mortgage financing. If the home does not meet the minimum requirements for “safety, security and soundness”, a renovation loan will provide the funds needed to bring the home to these standards and afford the borrower the luxuries of “interest only” payments on a mortgage, while the renovations are being completed. Due to their inherent risk, renovation loans require careful consideration on the part of the borrower. Talking to a lender who has experience working with contractors and construction professionals that understand the renovation financing process is a must for any borrower seriously considering the benefits of a renovation loan.