How Renovation Loans Work
Buying a home that needs some repairs or work done to it?
These are the steps to buying a home using renovation
Agree upon a purchase price with the seller, get your home
inspection, get your contractor quotes, order the appraisal,
close the loan. After closing and the keys to your home are
yours, the work begins. The work is completed, the
contractors are paid, and you live happily ever after.
As an example, you agree to purchase a home for $90,000. Your home inspector and contractor provide you with repair quotes of $40,000. This now means that you need a total of $130,000. The appraiser goes out and appraises the home as if all the work were completed. Hopefully in this case, the value with renovations is $130,000. On closing day, you receive one single loan, based off of $130,000 and from that, the seller is paid out $90,000, and the remaining $40,000 is paid to the contractor as the work is completed.
After all of the work is done, you have one loan, with one payment, and live happily ever after.