Renovation Loans
You’ve found an almost-perfect house to buy, or you love your current home and want to make some updates. Maybe you really want to live in a particular neighborhood, but the available homes are too small for your family. Now what? When you can’t find a house that ticks all the boxes, it’s time to renovate a house to do all that, and more.
What is a renovation loan?
A renovation loan allows you to customize a home you’re buying, or one you own now. While some renovation loans are for primary residences only, others can be used for second homes or investment properties. There are loans for projects large and small, and even loans specifically for Veterans and people living in rural areas.
Two big plusses: A renovation loan allows you to finance your improvements at an interest that’s lower than a credit card, and it preserves your cash reserves. If you want to renovate, we (probably!) have the loan for you.
How does a renovation loan work?
Traditional home loans pay a lump sum at closing to buy a property (purchase) or pay off a mortgage (refinance). Renovation loans include funding to pay for the renovations, so you only have one closing and one appraisal, saving time and money. You’ll need to choose a reputable contractor who meets CCM’s validation requirements (such as licensing and insurance) and provide a budget for your improvements. One important note: Renovation loans do not allow homeowner DIY participation.
Renovation loan types
There are several loan options for home renovations. Each one has limitations on the type of renovations you can make, and they may have specific spending limits. Take a look at these popular choices.
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Fannie Mae and Freddie Mac both offer conventional renovation loans: Fannie Mae HomeStyle® and Freddie Mac CHOICERenovation®. With down payments<https://crosscountrymortgage.com/resources/down-payment> as low as 3% of the total acquisition cost, the loans can be used to either purchase and renovate or refinance and renovate. There’s also a wider range of eligible projects than some other loans, and you can finance a second home or investment property.
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FHA 203(k) loans come in two versions, depending on the amount you’ll be spending on your project. You can purchase and renovate or refinance and renovate with either loan.The Limited loan is for smaller projects costing under $35,000. The Standard loan is for projects $35,000 and up, or when you need structural work. One big advantage of an FHA loan is that your down payment can be as low as 3.5% of the total acquisition cost of the property.
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Is the home you want to renovate in an eligible rural area? Then a USDA renovation loan could be just right for you. And “rural” includes small towns and even some suburban areas. There are income requirements for these loans, they are for purchases only, and target single family properties without income producing features.
A major benefit is that you can get a loan with 0% down and borrow up to 100% of the home’s after-renovation value. There are two USDA renovation loans: Limited is for non-structural repairs up to $35,000, while Standard covers structural and non-structural repairs exceeding $35,000.
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If you’re eligible for a VA loan<5.4.4 va loan>, but want to purchase or refinance a home that needs renovations, consider a VA renovation loan. Like a regular VA loan, you can purchase a home with 0% down, but a VA renovation loan<5.4.13.3 va renovation loan> allows you to finance up to 100% of the after-improved value of the home (90% for a refinance). The two VA renovation loans are: Limited, for up to $50,000 in non-structural renovation costs, and Standard, for structural and non-structural costs exceeding $50,000.
Renovation tools
How to get a renovation loan
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1
Talk to a CCM loan officer
Our loan officers work together with our dedicated in-house renovation team to find the right renovation loan for you. We offer many useful resources, including checklists and informational flyers, to help you stay on track throughout your renovation.
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2
Complete a loan application
At CCM, we offer a convenient online application, or you can contact our loan officers directly to help start the process. You’ll need the standard mortgage documentation demonstrating income, assets, employment, and credit. There will also be additional requirements specifically for a renovation loan.
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3
Choose a reputable contractor
An inexperienced or unreliable contractor will delay or even derail your project, so it’s important to choose wisely. Ask friends and family, look at online reviews, call prospective contractors to get a sense of their customer service attitude. Once you’ve narrowed your choices, meet them in person to review your project. Are they professional? Did they show up on time? Do you feel comfortable with them? After all, you’ll probably be sharing your home with them for a while!
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4
Provide contactor’s estimates and validation documents
The contractor you choose will have to provide their qualifications to CCM for validation. Once validated, don’t change contractors. It could cause major financial consequences. You’ll also need to complete any required or desired inspections.
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5
Complete underwriting
The underwriters will review all your documents. We’ll order an appraisal to establish the value of your property after all renovations are complete and estimate your post-closing equity.
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6
Close your loan
In some cases, your contractor will be able to leave the closing with a check for up to $25,000 to pay for project materials.
Once your renovation starts, a CCM renovation team member will be available to you. We’ll schedule periodic inspections, and release draws (funds) as the work progresses.
Can you use a home loan for renovations?
As we’ve shown, we have a wide range of home loans designed specifically for renovation. You could also use a cash-out refinance, a home equity line of credit (HELOC), or a home equity loan to finance your renovation. Consulting your CCM loan officer is the best way to learn about your options.
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