Home renovation loan frequently asked questions

A home improvement mortgage can make your renovation experience more affordable and accessible. In addition, because this type of loan allows you to finance the cost of home improvements into your mortgage, you can avoid taking out multiple loans or credit lines.

Renovating with a home improvement loan can increase the value of your home, making it a wise investment. Not only can it improve your home’s visual appeal, but it can also increase its functionality, energy efficiency and overall comfort.

A home renovation mortgage allows homeowners to customize their living space to fit their lifestyle and preferences, creating a more enjoyable and personalized living experience. Overall, a home renovation mortgage can be a great way for homeowners to invest in their homes and make them a more comfortable and valuable place to live. Discover the advantages of a renovation loan with these benefits:

• Only one loan

  Buy or refinance a home and make improvements with just one loan and one monthly mortgage payment.

• Make updates to suit your style

  Customize your home to fit how you live.

• Location, location, location

  Buy a fixer-upper in a neighborhood you love, or stay where you are and make it your dream home. Renovation programs are eligible in the following states: AK, AZ, CA, CO, CT, DC, DE, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MO, MT, NC, NE, NJ, NM, NV, OH, OK, OR, PA, RI, SC, TN, TX, UT, VA, WA, WI and WY.

• You may benefit at tax time

  Take advantage of tax-deductible interest since the remodeling costs are all in your first mortgage.

• Borrow more

  You can borrow more money because the loan amount is based on an appraiser’s estimate of your property’s worth once the improvements are finished.

• Spread out the costs

  Pay for the cost of renovations over the life of your loan instead of all right now.

Depending on the types of improvements that you want to make to your home, we offer three purchase and refinance renovation options with just one loan and one monthly mortgage payment.

You can use a home equity option for several types of big life expenses, home improvements included. You can also pay tuition, consolidate debt, purchase a second home or tackle an emergency expense. Home equity loans are based on your current home equity rather than the estimated improved value of your home after improvements.

• A HELOC is a line of credit secured by your home. Since HELOCs rely on your home’s equity, you can’t borrow more than the value of equity in your home, which is the value of your home minus the amount you owe on your first mortgage.
• A home equity loan (HELOAN) provides up to 95 percent of your home’s equity as a piggyback second mortgage.

While there may be some similarities in the requirements for a home renovation loan, your financial situation and plan to fix up your property makes your qualification requirements unique.

However, common factors are considered when evaluating your loan application. Usually, you need to have good credit and be current with your other major expenses, and you can’t have lost a property to foreclosure in the past three years. It might be harder to qualify if you owe the government any taxes. Like other FHA loans, you can pay as little as three and a half percent down and still be approved for an FHA 203(k) loan. A Conventional renovation loan requires a minimum down payment as low as three percent.

Applying for a renovation loan requires providing similar information that you would for most other home loans, such as information about your income, assets and liabilities. The notable difference is that you’ll submit a cost breakdown and documentation for your desired renovation and hire a contractor before loan approval.

After you’ve received your pre-approval letter, Guild Mortgage home renovation loans and FNMA HomeStyle Renovation follow this process:

1. Your renovation loan specialist will help ensure you’ve selected a licensed contractor and finalized the cost breakdown for your renovations.
2. Once improvements are made, an appraisal is ordered of the property value.
3. The general contract approval process is then completed, and the loan processing team reviews your file and submits your application to the underwriter.
4. The underwriter reviews your loan application and issues the credit decision.
5. Once the credit and property have been approved, your loan will move to closing, and you’ll attend your closing meeting.
6. After your loan closes, your loan balance will be held in a Construction Holdback Account, and you can start your home improvements.
7. Our partner, Land Gorilla, will assign you a dedicated Construction Loan Administrator (CLA) who will become your point of contact. The CLA communicates with you and coordinates the needs of the contractor, the inspector, the title company and Guild Mortgage during renovation. The CLA manages the process of obtaining the funds by making “draw requests” as improvements are made. Draw requests can be made online through the Land Gorilla Construction Loan Manager website or requested via email directly to the CLA.

Depending on the type of home renovation loan that you choose, you can upgrade, remodel or repair almost anything:

• Remodel your kitchen and bathroom
• Make your home more energy-efficient
• Upgrade electrical and plumbing
• Heating and air conditioning (HVAC) system installation
• Create an accessible entry and make improvements to livability
• Eliminate health and safety hazards
• Repair cracked slabs or make structural improvements
• Install new flooring, windows and doors
• Lead-based paint and mold abatement
• Adding or repairing roofs, gutters and downspouts
• Build second stories and room additions
• Repair cracked slabs or make structural improvements
• Install swimming pools, outdoor entertainment areas and landscaping
• Weather stripping and insulation upgrades
• Add an accessory dwelling unit (ADU), also known as a granny flat
• Rebuild an entire house on an existing foundation
• And many others

Renovation loans are designed to allow borrowers to refinance their existing mortgages and include renovation costs in the new loan. This can be a good option if you’re looking to finance large home improvement projects. Here’s how the renovation loan refinance process works:

• You provide us with a cost breakdown for the renovation, and we appraise your home as if the renovation work has already been completed, giving us the after-renovated value
• A refinance renovation loan uses the after-renovated value to allow you to tap into future equity now
• We provide you with one new loan that includes the renovation funds for your project

It’s essential to carefully consider the costs and benefits of refinancing with a renovation loan and to work with a trusted local lending team who can help guide you.

Here are a few key repair guidelines to keep in mind:

• Generally, you can’t be the one who is making the home improvements. A trained and officially licensed contractor needs to do the labor. It’s always best to leave fixes to the experts, especially since the updates are designed to make the home more valuable.
• Your project must begin and finish within a certain time frame. Typically, work must begin within 30 days of closing, cannot stop for more than 30 consecutive calendar days and must be completed within six months.
• Regular updates on the progress of the work are required every 30 days.

In addition to financing the purchase price of your new home or existing mortgage balance, if you’re refinancing, a home renovation loan ​​covers renovation or repair costs. These costs may include materials, labor, a contingency fee for items that come up during the renovation process, permits, architect or engineer fees, inspections, title update and consultant fees if applicable.

An FHA 203(k) is a good option if you’re planning on a larger or more complex project and need the flexibility of a low down payment. However, you should weigh the pros against these cons before deciding if this is the best renovation loan option for you:

• Requires FHA mortgage insurance
• Can’t be used for an investment property unless you live in one of the units full-time
• May require a HUD consultant and an experienced contractor
• Limits the kinds of projects that can be carried out

We can help you navigate the path to making home improvements to create a home your family loves. Connect with a renovation loan specialist in your area who will help you get pre-approved and better understand your renovation loan options.

*These are brokered loan products. State restrictions and eligibility requirements will apply based on investor guidelines.