Loan Programs

Renovation & Construction Loans

Renovation projects can add value and comfort to your home. Many times homeowners wrongly assume that completing such projects will require jumping through too many hoops to secure financing.  Additionally, some have concerns about utilizing too much of their cash in hand to put down payments on materials, labor, and other items, resulting in a strain on their finances. That is no longer true. If you’re looking to make significant improvements to your home, such as adding a swimming pool, renovating your kitchen and bathroom, or putting on an addition to your home, you should look into home improvement financing with Residential One Lending. Do not let the costs or procedures of a renovation project discourage you from customizing your home the way you want it. We offer several loan programs that enable you to build the home of your dreams!

With many of the home improvement loans from Residential One Lending, your mortgage loan balance can exceed the home’s purchase price or current appraised value, allowing you access to the funding needed to complete your project in full. Home improvement loans combine the funds necessary to not only purchase your home (or pay off your existing mortgage in the case of a refinance), but also wrap the construction/renovation costs into a single loan at a low interest rate.

Anyone looking to embark on a renovation project is eligible to qualify for a renovation loan. Depending on your credit and income profile you may be eligible to borrow up to 110% of the “as complete (after renovation) value” of your home, giving you plenty of flexibility to customize the project exactly as you wish. The best part of our renovation loans – depending on your credit score you may qualify to put down as little as a 3.5% down payment. Our loan consultants have assisted hundreds of happy homeowners in completing renovation projects and have customized loan programs to their individual needs.

The following is a sample of the most popular construction and renovation loans on the market today:

  • FHA 203(k) Purchase Loans
  • FHA 203(k) Refinance Loans
  • Fannie Mae Homestyle Renovation Loans
  • Construction to Perm Loans
  • New Construction Loans

FHA 203(k) Home Improvement & Fannie Mae Homestyle Loans (Purchase Loans)
For many people, buying distressed or “fixer upper” homes can be a lucrative investment and a way to secure an affordable home. However, many of these homes are in need of repair and TLC, and the costs to cure these items can become costly. With a home improvement purchase loan, you can utilize a single fixed rate mortgage to fund the purchase of the property while wrapping renovation costs into the purchase loan.

FHA 203(k) Home Improvement & Fannie Mae Homestyle Loans (Refinance Loans)
If you already own the property that is subject to renovation, a home improvement loan allows current homeowners the opportunity to rehabilitate and improve their home. Whether it’s making a home handicapped accessible, replacing your roof, or upgrading your kitchen and bathroom, home improvement projects can raise the overall value of your home and allow you to customize your living space as your needs change. A home improvement loan gets you get the cash you need to fund your home improvement project. One beneficial feature of this loan is the fact that the new mortgage balance can exceed the current appraised value of the home, enabling you access to the necessary funds to complete the renovation project. It is also important to realize that you do not have to have an existing FHA home loan to qualify for the FHA 203(k) refinance loan.

Types of Projects That Qualify For a Home Improvement Loan:

  • Decks, patios, porches
  • Home expansion
  • HVAC systems and new appliances
  • Landscape improvements and swimming pools
  • Basement completion and waterproofing
  • Roofs, gutters, downspouts, weather stripping, and insulation upgrades
  • Plumbing and electrical upgrades
  • Kitchen or bathroom remodeling
  • Installing new windows, doors, carpeting, tiling, or wood floors
  • Disability improvement
  • Energy efficient upgrades

The above list details only a few of the cost saving and value adding improvements that can be made with a home improvement loan from Residential One Lending. Contact us now to speak with one of our advisors about your project scenario to see if you qualify for a home improvement loan or one of the many others we can offer you.

New Construction Loans

Building a custom home can be a fun and rewarding experience, but it can also be a long and expensive process without proper planning and funding. Most people cannot afford the luxury of paying for the cost of building a new home up front, and getting a construction loan can be tricky. After all, you are asking a lender to lend you money on something that doesn’t even exist yet.

A construction loan is typically a short-term loan used to pay for the cost of building a home. It may be offered for a set term (usually around a year) to allow you the time needed to build the home. At the end of the construction process when the house is fully complete, your new loan is then converted to a traditional loan product, sometimes called the “end loan.”

Qualification for a New Construction Loan

Investors and mortgage lenders are often leery of construction loans for many reasons. One major issue is that you need to place a lot of trust in the builder. The bank or lender is lending money for something that is to be constructed, with the assumption that it will have a certain value when it’s completed. If something goes wrong, for example, if the builder does a poor job or property values fall it could turn out that the bank has made a bad investment and that the property isn’t worth as much as the loan. In order to protect themselves from this problematic outcome, banks often impose strict qualifying requirements on construction loans. These usually include the following:

  • Choosing a qualified builder or licensed contractor with an established track record of building quality homes.
  • Providing detailed building specifications such as ceiling heights, insulation type, floor plans, building materials, etc.
  • A detailed home appraisal must be done.
  • Larger down payments are typically required.

How Construction Loans Work

Once qualified and approved, we will begin paying out the money that has been agreed to loan to you. However, the cash will not be distributed in one lump sum; Instead, a schedule of draws will be set up. Draws are designated intervals at which the builder can receive the funds required to continue with the construction project. There are typically several draws scheduled throughout the construction of the home. For example, the builder may get the first 10% when the loan closes, and the next 10% after the lot is cleared and foundation poured. The next distribution of money may come after the house is framed, and then the subsequent payout after the roof has been constructed and sealed up.

The number of draws and the amount of each is negotiated between the builder, buyer, and the bank. Normally, the first draw comes from the buyer’s down payment (so it is the buyer’s money most at risk). It is also common for the bank to require an inspection at each stage before releasing the next round of funds to the builder. This measure helps to ensure that everything is on track and that the money is being spent as it should to protect all parties involved.

Once all the draws have been paid out and the home is built, the buyer then needs to convert to an end loan in order to pay the construction loan off.

Payments During the Draw Period

During the construction phase of the loan you are required to pay interest on the money you borrow. Typically, construction loans are adjustable rate loans during the draw period and in many cases construction loans are set up as interest-only loans. This means that you are only required to pay interest on the money you have borrowed instead of paying down any part of the principle loan balance during the construction phase. This makes the payment of construction loans easier to manage before you officially move into the new home.

It is also important to note that you are only required to pay interest on the amount that has already been used by the builder. For example, if you are borrowing $400,000 and only the first $175,000 has been paid out, you are only required to pay interest only on the first $175,000 and not on the full $400,000. You are required to make monthly payments that should start out low when only a small amount has been dispersed and the payments gradually increase over time as more and more of the money is used by the builder.

Contact us today for more information!