Financing Your Virginia Beach Home Renovation – What Are Your Options?
As if there isn't enough to consider when doing any type of renovation, addition, restoration or remodeling project at your home, adding to it the prospect of paying for the project can be mind boggling and frustrating for anyone. Cash is always king and if you have it in the bank as expendable income, it’s always the easiest and quickest way to do any type of project. But plenty of us have needs and desires for our homes without having the additional expendable income available. So what are our options? I’m hoping that this post will help shed some light on a few that have been successful for our clients in the past.
203K Renovation Loans
The 203K renovation loan is a product that has been steadily becoming one of our niches in the market. If you've ever seen the HGTV show Property Brothers, this is exactly the process that they use on every one of their projects. There are different options available for each client’s specific needs, ranging from a product that caps out around $30,000 and does not include structural repairs to a full 203K product that is nearly limitless. Essentially, the value of the renovation budget availability is based on the appraisal of the home “as is” and an estimated appraisal of the home’s value for once the renovations are complete. You must still qualify for the total value of the loan after the renovations are complete.
A major benefit for this type of loan product is having a third-party consultant overseeing the project and working with the contractor and lender to ensure that the project is done well. Available funds for the renovation are placed into an escrow account by the lender after closing, with a 10-15% contingency reserve made mandatory and only able to be applied to change orders as approved by your consultant. Likewise, draws are made available only once progress inspections are completed and signed off by the owner and the consultant. The lender will also do the due diligence for you, before the project is even approved and closing on the loan occurs. They require a plethora of paperwork from the contractor to confirm that the contractor is a Class A or B contractor and is licensed and insured.
Many contractors, in fact, eliminate themselves from even participating in these type of projects because they do not have the back end capability for doing the paperwork and fulfilling the obligations required. This is where we differentiate ourselves from the competition and have established ourselves as a go to resource. Our team and office staff are well-versed in performing the tasks required to meet the needs of the consultant and the lender and to make your project successful! See this process simply explained here:
Another option for owners who are already established in their home is to take a second mortgage. Typically this would require an additional lien against your home and carries a higher interest rate than a primary mortgage. While options do exist that, depending on the amount requested, do not put a second lien on the property and may not require a closing, interest rates are all typically higher than a primary. Because the amount of the loan is typically a fixed rate, choosing your contractor is of utmost importance.
Due diligence is not assisted by a third-party consultant and plenty of contractors only offer estimates of what the work will cost. Some contractors may hide charges until the contract has been signed and the project has begun, leaving you wondering where the extra funds may come from. Of course, there could always be legitimate unforeseen items with any type of demolition on a renovation project. It’s wise to consider a 10-15% contingency fund to set to the side from the total value of your loan as a “just in case” measure. In this scenario, choosing a contractor such as Regal Renovations will help to ensure that you stay on budget.
Our elite planning processes enable us to make promises on our proposals regarding the scope of work, instead of simply giving estimates. This guarantees that you’ll only have a change order for a true unforeseen or if you request additional work. With a significant waiting period for this financing to be processed in most situations, it also allows you to be well set up for success before even going to the bank with your plan of attack. We pride ourselves on this facet of our business.
Home Equity Line of Credit (HELOC)
Similar to a second mortgage, the home equity line of credit does offer a little more flexibility allowing you to take funds as needed and only paying interest once it has been withdrawn. Realtor.com has a great article comparing these loan products: www.realtor.com/advice/second-mortgage-best-option This could allow you to do projects in phases, repaying the line of credit before beginning the next phase and saving on interest. Once established, a solid working relationship with one contractor would typically be the best way to plan and phase your projects to maximize your capacity. Again, working with a company like Regal Renovations will allow you to plan and properly phase projects like additions, kitchen renovations, bathroom remodels and even smaller projects like window replacements, roofing or siding systems. Our team is dedicated to serving your needs whatever they are. Your business is important to us now or five years from now. We will do what it takes to EARN it all the while making sure that we are educating and preparing you through the entire process.
Although our goal is to help you consider alternative financing options and prepare for projects like additions, renovations, remodels and restorations we are not the pros in the lending market. This information is meant to help guide you but is not guaranteed to be as 100% accurate as you would get from a qualified lender or loan officer. However, we have been working hard to establish positive relationships with local lenders in Virginia Beach, VA that have the same mission and vision we have which is to educate clients and help choose the right product for each individual or family whether they make a commission or simply do the right thing and connect them with the correct resource. Contact us today and we will be happy to help explain the process to the best of our knowledge, plan and prepare for your project, and put you in touch with the best lender, with the best rapport and reputation for your specific situation. We look forward to hearing from you and turning your dreams into reality!