If you’re searching for a home that might require some upgrading, then a conventional renovation loan might be just the ticket. This kind of loan enables a person to buy a house and at the same time purchase or finance the repairs in the same loan. However, what is a conventional renovation loan, and how does it operate? Further, you will learn about its benefits in this guide, and we will explain how to use one.
At CFS Companies Inc., we explain these possibilities concerning construction and renovation to our clients. Whether you own a house or manage a property, we have strategies to help get the loan done.
What is a Conventional Renovation Loan?
A traditional renovation loan is a type of mortgage where the buyer can acquire both a home and renovation funding in one loan package. This type of home loan differs from other home loans, where the borrower may need to secure a different loan for the renovation costs as the costs are bundled together and paid in a single monthly installment.
This loan will suit those homes that require refurbishing or are in the process of renovation. The buyers can even take financial help for the amount of the property cost plus the repair cost they intend to do. CFS Companies Inc. can assist you in getting the right loan fit for renovation purposes.
How Does a Conventional Renovation Loan Work?
As discussed below, the procedures followed to get an average renovation loan are relatively straightforward. First, you obtain the loan in the same way as any usual mortgage. However, instead of taking a loan for just the cost of the house, you will take the loan amount, which is the cost of the home plus the cost of the renovation.
Once credit is given, the funding is pegged on the home’s likely value after the repair work. This differs from standard loans, which are provided based on the home’s value in the current market. Your financial institution will assess your renovation plans and disburse the money required for the upgrade.
At CFS Companies Inc., we help you estimate renovation costs and work with the right contractors to ensure everything is completed as planned.
Types of Conventional Renovation Loans
There are two main types of conventional renovation loans available to borrowers:
- Fannie Mae HomeStyle® Renovation Loan: This loan enables homeowners to lend money to improve several properties, such as single and multifamily homes. This loan can be applied for general improvements, both structural and aesthetic, as long as the improvement adds value to the house.
- Freddie Mac CHOICERenovation® Loan: Similar to the Fannie Mae option, this loan pays for the acquisition of the property and the improvements only. It is versatile, and therefore, it can be applied when renovating different structures.
They both have reasonable interest rates for the borrowed amounts and the possibility to finance significant renovations. They are ideal, especially if you desire to increase your home’s value or change it to suit your needs.
CFS Companies Inc. will assist you in identifying which loan product best suits your project needs.
Benefits of a Conventional Renovation Loan
Conventional renovation loans offer several key benefits: Conventional renovation loans offer several key benefits:
- Single Loan for Purchase and Renovation: You would not have to juggle between a home purchase loan and a home renovation loan. This helps you clear all your payments at once and helps organize your budget.
- Competitive Interest Rates: They are often less expensive than using credit cards or a personal loan to fund improvements. This saves you, the consumer, a lot of money in the long run.
- Wide Range of Property Types: Traditional renovation loans can be used without restrictions for primary residences, second homes, and rental properties. For investors, flexibility of this kind is very welcome, making an investment in them favorable.
- Increased Property Value: We found out that home renovation is a very effective way of boosting its value in the market. A conventional renovation loan enables you to carry out these enhancements at the start, which can prove more profitable.
If you are considering renovating your house, consider CFS Companies Inc. today. We can assist you in finding out how you want to approach the situation and what decision to make regarding your financial choices.
Eligibility Requirements
It is essential to know that there are some requirements that one has to meet to be eligible for a conventional renovation loan. These may vary slightly between lenders, but the key factors include:
- Credit Score: Usually, to qualify for a conventional renovation loan, you must have a credit score of at least 620. It can also result in improved interest rates charged depending on the scores obtained.
- Down Payment: The down payment one is expected to make on these loans ranges from a minimum of 5%. Still, based on the type of loan and your finances, there could be a need to pay down more.
- Debt-to-Income Ratio: Lenders shall also consider a debt-to-income ratio, which will dictate whether you qualify for the loan. The total monthly installments for the various debts should be at most 40% of the total gross salary.
At CFS Companies Inc., we can determine your qualification for a conventional renovation loan. Contact us today so that we can help you in your application process.
How to Apply for a Conventional Renovation Loan
Applying for a conventional renovation loan is a step-by-step process:
- Get Pre-Approved: The first step that has to be taken is to obtain pre-approval for the loan. This helps determine how much you can borrow to limit the properties you look for.
- Submit Your Renovation Plans: To your lender, you need to present detailed renovation plans, including cost proposals. This enables the lender to decide on the overall loan amount.
- Loan Approval: When the plans are approved, the lender will extend the loan to you depending on the estimated value of your home upon repainting.
- Complete Renovations: The renovation job commences once a loan has been completed. This can be done in installments, where the lender releases the funds in proportion to the work done on the project.
- Make Payments: Regarding the payments, you will make monthly installments on the total loan amount once the loan is closed.
CFS Companies Inc. offers full-cycle services – from the pre-approval stage to the final one. We cooperate with the best lenders to provide the best loan for your projects.
Is a Conventional Renovation Loan Right for You?
A more traditional form of renovation loan may be suitable for any purchaser, investor, or trendy amongst first-time buyers. It is ideal for a person who wants to buy a house that needs repairs or improvements on the current structure. This may be for you if you prefer having only one loan to purchase a home and renovate.
However, if your renovation plans are minor or you are purchasing a property in poor structural condition, the FHA 203K loan might suit you well. That is why the borrowers should compare the advantages and disadvantages of each credit type before making the decision.
At CFS Companies Inc., we understand your different lending needs and their options and are here to assist you. We are always willing to help and advise you to make the right decision for your home renovation needs.
About CFS Companies Inc.
CFS Companies Inc. prides itself in providing information and expert guidance on construction to homeowners and potential investors. Here, you can get professional recommendations and tools to select the proper loans for your renovation needs. Our law firm was established based on years of experience practicing law and customer service.
If you tie a home purchase or home improvement project, CFS Companies Inc. makes it possible to make that investment. You can contact us today to learn how we will help with your renovation and construction needs.
Conclusion
An FHA renovation loan is a standard renovation loan where the applicant can acquire and renovate a new home. As the loan deals with the property and the renovations simultaneously, it means a single loan and has several financial advantages. Whether you are planning to buy your first home or are an experienced investor, this type of loan will be the door to transforming your property.
Contact CFS Companies Inc. to learn more about what you can do next in your renovation process!