Houses for sale come in all types of conditions.
Some homes are brand new and sold at a higher price. Other homes are old, in bad quality or completely condemned. Rather than plow down the house, there are options to refurbish a house.
This is where refurbishment loans come in. You can use this loan if you do real estate investing. You can buy a cheap house, take out a loan and re-do the home.
You can also take out a loan and update the home you’re currently living in. This loan will help fix problems in your home, so you can live at home or sell off your house for a higher price.
Here’s how refurbishment finance loans work.
How Refurbishment Finance Loans Work
Refurbishment loans are also called renovation loans, but their professional title is the FHA 203k loan.
These loans differ from other loans. Rather than help pay off a loan, they help pay off renovation costs. In addition, these loans help increase a home’s value.
A lender will determine the loan amount by seeing how much work the house needs to have done.
They will calculate the cost and come up with a borrow amount. They also take the property’s value before the renovation and the predicted value after the renovation finishes.
Most people who take out refurbishment loans are house flippers. But plenty of homeowners and new homeowners use them to upgrade their home.
Before you start planning that renovation project or start looking at old homes, make sure you can qualify for a refurbishment loan.
How to Get a Refurbishment Loan
Regardless of your goals, everyone applying for a refurbishment loan will approach this loan like any other loan.
When you approach a lender, they will require documentation such as bank statements and proof of income.
The lender will want to know your current financial state to ensure you can afford the renovations and pay off the loan.
But refurbishment loans have their unique requirements. This includes the following:
- Renovation plans
- How long the renovation will last
- Supplies and labor cost
- The company or companies performing the renovation
If you’re performing any work DIY, the lender will need to see proof of expertise. This includes proof of construction and renovation and any licenses.
If you decide to hire a company or different companies, you’ll want to have a contract in place. Make sure you agree on a cost and the price is clearly stated in the contract. Give a copy to your lender.
For larger projects or condemned houses, insurance may be a requirement. Your renovation project may also have to meet gas, septic, or water standards. Always have proof of these facts.
Now You Know About Refurbishment Finance Loans
A renovation is a process. Whether you’re renovating your home or flipping a house, having finances ready for renovation is key. Refurbishment finance loans help ensure you meet your renovation financial obligations.
Gather all the required documents and permits, and get your refurbishment loan!
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