If you’re still wondering whether to get a renovation mortgage or not, it’s important to learn about its advantages. One of the first things you have to check is your current financial status. You also need to prepare a plan for what you want to do with the renovations.
Renovation mortgages work by giving you the money to buy a new property that needs restoration. You can either get these types of properties through an open market or auctions. Expect properties that have no electricity or running water as well as those in need of repairs.
The amount that you can get from these loans will depend on the post-renovation property value. This is calculated from the expected property value once the property has been fixed and renovated. The great thing about this rule is you get to have a bigger budget for the renovation.
What Is a Renovation Mortgage?
Having a renovation mortgage means that you can gain more funds in repairing a home or property that you wish to buy. It’s a good deal for people who want to move but are having a hard time preparing their restoration funds.
If you’re only relying on your mortgage you will be stuck with the home’s value deducted by your equity. Sometimes, it’s not enough to work with what you can borrow from the property value. Most repairs and restorations are costly and you want to go for the best option.
Having a renovation mortgage will give you the budget that you need. From buying the property to planning and executing the restorations, all will be covered. All you have to know are the restrictions and the limitations of the restorations allowed.
Advantages of a Renovation Mortgage
When you plan on getting a renovation mortgage, you first have to understand what it does and how you can benefit from it. This type of mortgage will bring you plenty of advantages especially if you are struggling with your budget. Below are some benefits to look out for.
- More Options on Renovation
You get to have more options when it comes to renovating the property. Unlike other mortgage options, renovation mortgages can let you add more rooms, remove parts of the home as well as landscaping, repainting jobs and more.If you are a person who values creativity and would want more freedom with restorations then go for a renovation mortgage. Not only will you have more flexibility with renovating your home, but you also have more budget to work with.
- No Collateral Needed
Renovation loans will not require any collateral from you. You won’t have to worry about lenders foreclosing your home when you default on the loan. The equity of your home will not matter once you have the mortgage.What’s important is identifying which parts of the property you wish to renovate from the get-go. Have a detailed plan prepared so that your lender can see where the money will be spent. If they see that the restorations you want are reasonable, then it will be easier for them to offer you the loan.
- Lower Interest Rate
When you go for this type of loan, you don’t have to deal with multiple other mortgages. It’s ideal for people who want a single monthly payment with lower interest rates. These rates already cover both the total amount of the property plus the amount you need for the repairs.Depending on the term that you’re most comfortable with, you can request from 15 to 30 years in the mortgage. The best thing about that is that you also have adjustable rate options. Ensure that you already have your restoration plans prepared to get more accurate rates.
- Improves Home Equity
One of the biggest advantages of this mortgage is that it can improve your home equity over time. Once you’ve acquired the home and have finished the restorations, the property value increases. You can make your property more appealing and at the same time continue building equity.Of course, not all restorations are the same which is why your home could have a bigger or smaller value compared to others. The overall value still depends on how big the restoration project was and how much it added to your home’s curb appeal.
You can have restoration projects such as the installation of new wood, door replacements or new wall paint. These are much better options and can give you more monetary value compared to adding amenities like a swimming pool.
- Limiting Your Closing Costs
Since the loan can combine both the amount of the property and the funds for restoration, you will have less to worry about with the closing costs. You can now focus more on what restorations to prioritize and how to increase the value and equity of your property.You no longer have to worry about working with more than one mortgage. This loan gives you the ability to use the funds for investing in your new property without risking losing any money. Adding major home improvements can now become easier and more accessible.
- Makes Owning Properties Easier
Many people who want a home find it hard to acquire one because of the costs involved. Thanks to renovation mortgages, getting a property while also getting a budget for renovations has made home acquisition more accessible for many.The market doesn’t always offer affordable options which is why having a mortgage that also takes care of your renovation budget helps a lot. The mortgage for renovation opens up plenty of opportunities for homeowners to buy properties in cities of their choice.
You can now not only own a home but also build the home of your dreams. Thanks to the renovation funds attached, you can customize your new property to make it look more homey or more to your style and needs.
Will Renovation Mortgage Suit You?
If you don’t have enough budget to buy a property and spend on its repairs, then the renovation mortgage will be perfect for you. It’s also the best choice for people who want properties in poor conditions and those that won’t qualify for financing.
One typing to note is that if you take out this mortgage, you need to complete your renovation plan in 6-12 months. If you can do the property fixes earlier, then it’s much better for the lenders. You also need to be prepared with the inspections and paperwork involved in acquiring the property and renovation funds.
Even though there are still limits on how you can use the renovation funds, the good news is that it could lessen your costs. You also get to have one of the lowest rates for borrowers. Look for a local renovation mortgage you can work with and start looking for your dream home.