If you watch enough late night TV you’ll undoubtedly come across some home improvement / flipping / renovation shows. When the show is over you think to yourself that it might be fun to give that a try. After all it looks lucrative and easy. Before you arm yourself a new sledgehammer and head out on a mission to find a property in need of your skills, find out if your plan can be financed with a mortgage. You’ll find lenders have tighter lending guidelines for renovation mortgages. Why is this?
Simply put, the house has to get worse before it gets better. It is often gutted and torn apart to the point of being unrecognizable. So what happens is that the value of the improvements on the property actually go down before they go up. If the renovation doesn’t go as planned and the lender forecloses and has to deal with a half finished renovation, they’ll have to step in to deal with the mess. As a result, you’ll find lenders very conservative on their loan to value calculations.
But don’t be discouraged. Renovations can still be financed. It just means the borrower will have to have more of their own money into the project than they may have budgeted.
If you have questions about construction / renovation financing, contact us and we’ll get you going on the right path.