What makes a Renovation Loan different?
A lender will not close a conventional loan and release the mortgage proceeds unless the condition and the value of the property provide adequate loan security. This is generally not a problem, as most houses are put on the market in a condition which is acceptable to the lender.
However, a house in need of substantial repairs will not qualify as adequate security. Here's the beauty of a Renovation Loan. With a Renovation Loan, the home buyer will get one mortgage to finance both the acquisition AND the renovation of the property. The loan will be based on the higher value of the property after the renovation is complete.
How does a Renovation Loan make things easier for me?
When a home buyer wants to purchase a property in need of repair or modernization, the home buyer usually must first obtain financing to purchase the dwelling, then secure additional financing to do the renovation construction, and finally, a permanent mortgage when the work is completed to pay off the interim loans. Often the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amortization periods.
A Renovation Loan removes all this detail and work and allows you to focus on what's important to you, creating the home you want.
Renovation loans are perfect for first time home buyers who want a fixer-upper.