Financing

When financing a renovation, there are several options for you to consider, depending on your particular situation. Should there be enough equity in your property, the last three options may be of interest. All three of those options are based on your current appraised value.

An additional option is the Construction/Renovation Permanent Loan (usually referred to as a CP loan), which is based on the appraised value AS RENOVATED.

CONSTRUCTION/RENOVATION LOAN - When the funds are not available from any of the options below, the construction/renovation loan is available, as it is based on the "APPRAISED VALUE AS RENOVATED". When the plans, specifications and cost basis have been completed, an appraisal of the property is done for the value as renovated. The loan is based on the payoff of the first mortgage, plus the cost to renovate, closing costs, along with a contingency reserve for change orders. This loan can be up to 95% of the appraised value as renovated. Many times, this may require little or no money down.

Furthermore, you pay interest only monthly during renovation on funds as they are used and can enjoy up to 18 months of interest-only payments, with no pre-payment penalty. No escrows for taxes and insurance are collected during construction. With this one-time close, upon completion you just modify into a permanent loan for a fee around $250.

HOME EQUITY LINE OF CREDIT - When there is enough equity in the property to finance the renovation, the Home Equity Line of Credit (HELOC) is an avenue to consider. The first mortgage, if there is one, will stay in tact. The line of credit can go to 100% of the appraised value, without the renovation. It is an interest only loan (the minimum payment) with a rate that is attached to the Prime rate and will fluctuate with Prime. With the HELOC, you can write checks to the remodeling contractor as billed.

SECOND MORTGAGE - A second mortgage is figured the same as the HELOC above. However, it is a fixed rate (not fixed to Prime) and your payment will include both interest and principal. On this loan, the total needed will be the amount you get at closing.

REFINANCING THE FIRST MORTGAGE - Another option is to do a "cash-out refinance". Especially when your first mortgage is up to three fourths of a percentage higher than the current rate, you might consider refinancing the first mortgage and increase the amount of the mortgage by the cost of your renovation, thereby giving you the funds needed to renovate at closing.

LENDERS

American Trust Bank Mortgage
Sally Coulter, Sr. Lending Officer
Phone: 678-585-0539
Cell: 404-664-6560
scoulter@americantrustbank.us