Buying a Fixer-Upper? Consider This Type of Loan
By Katie Bassett
Your mind is ready to transform that recently purchased fixer-upper into your beautiful dream home, but your bank account may feel differently.
To upgrade your fixer-upper home, you’ll need some additional funds, but your savings account shouldn’t hinder your ability to begin renovations. There are different mortgages and loan options perfect for families who want to update their house.
Learn About the Renovation Loan
A renovation loan might be the answer to your home renovating prayers because it allows you to purchase the home with a reserve that’s put in escrow to fund renovations. This loan is ideal for families who can afford the mortgage payment, but may not have enough cash for renovations. To help determine your mortgage payment, use a mortgage calculator to calculate your estimated payments on your home.
Once the mortgage closes on a home, one portion pays for the house while the other is deposited into an escrow account. As work is completed on the home, money from the escrow account is released to pay the contractor.
Find the Right Contractor
Finding the right contractor is key when applying for a renovation loan. Your loan amount will vary, based on the scope of the renovation and the home appraisal value, which is where your contractor comes into play.
Be selective when choosing a contractor. Not only do they need to be licensed, insured, and in good standing, but you’ll want to look for a contractor who is easy to communicate with. You want to share your vision with the contractor and make sure you are both on the same page.
Additionally, you will want to do you research before meeting with various contractors to determine who is right for the work. Most homeowners rely on the interview process to educate themselves on the products, services, and processes required for the necessary job. However, that is a major myth about finding the right contractor. Without researching the project and scope of work, you will not know the right questions to ask when interviewing potential contractors.
Once determined, you’ll determine what repairs are needed and how much it will cost. Create a purchase contract that reflects the information and bring this to your lender for approval. After the list of contractors and scope of work are approved, you’ll be ready to go!