Equity Matters: Building Dreams with Renovation Loan Solutions

In response to your over-whelming requests, PRMG is proud to announce our upcoming educational seminar, Building Dreams with Renovation & Construction Solutions open to the Community on Friday November 4th at 11 – 1 pm in downtown Honolulu. Sponsored by Fidelity National Title & Escrow of Hawaii Inc. & RE/MAX Honolulu, we will explore hot renovation topics as well as provide for a question-and-answer forum!

As mortgage interest rates continue to soar, many Homeowners are choosing to stay put in their current home, rather than purchase a new or larger home. Thus, the biggest concern has been how to gain the cash that is needed to perform renovations and upgrades to their existing dwellings without expending all their savings, and leaving families stressed during these unprecedented times and looming economic recession.

According to hawaiibusinessnews.com, most homes in Hawaii are equity rich. This means that most island homes are worth at least twice as much as what is owed on any mortgages or other debts on the property. This equity can be extracted to pay for the changes you’d like to make to your home. Whether you’re looking to renovate your kitchen, install a home office or add an ADU (accessory dwelling unit), any major home improvement is going to require some serious money. You don’t have to wait until you have all the cash in hand, though. A home renovation loan could be your path to getting the project underway sooner than you think.

So, the Paramount question is… What are home renovation loans and how can they be used?

A home renovation loan is a loan that includes funds for renovating, remodeling, and repairing a home. Depending on your family’s needs and scope of work, there are various options that you can choose from.

Home Equity Line of Credit (HELOC) – A home equity line of credit comes in the form of a 2nd mortgage lien, and it acts like a large credit card that attaches itself to the back of your home. Once the line is acquired and in place, this allows you to draw out the monies as you need to fund your renovations. HELOCs are generally written based upon the current City and County tax assessed value, so the offering can be more conservative and give you access to less home loan to value than if a traditional home appraisal were to be performed by the Lender. HELOCs generally require higher credit scores to qualify and a lower debt to income ratio threshold to be approved. Further, HELOCs usually allow for an interest only payment, which at the end of the line’s draw period, leaves you worrying about how you will solve for the amount that you owe if you haven’t been making principal payments along the way. Thus, when using a HELOC, you will want to always have an exit plan. And for this reason, HELOCs are considered a temporary way to fund your renovations as you’ll most likely need to refinance in the future to pay off the HELOC or consolidate it with your 1st mortgage lien.

Cash Out Refinance Refinance of your current mortgage with a cash payout for home improvements. Refinancing your existing mortgage at a higher loan balance will allow for a permanent way to gain the cash you need to fund your project. This mortgage comes in the form of a traditional 1st lien and requires a principal and interest payback with a fully amortized payment schedule. This means that if you make every payment according to your mortgage note, your loan will be paid off by the end of the term – 15, 20, 25 or 30 years. During this process, the Lender will order an interior and exterior home appraisal to determine home value and will lend to 80% of your existing “as is” home value. Your home will need to be free of any health and safety issues and the appraisal will not give value to any non-permitted spaces or the renovations that are yet to come. Cash out refinance mortgages can be written as Conventional, VA, FHA or Non-QM (specialized self-employed borrower programs).

Renovation / Rehabilitation Loans Renovation (rehab) loans are a permanent mortgage that are a hybrid between a traditional 1st mortgage and a construction loan. What makes these loans an excellent choice to fund your renovation project is that the Lender will take into consideration the “after-improved” appraisal value to include the value that your prospective repairs will add to your home. Renovation loans can be Conventional, in the form of a Fannie Mae Homestyle or a government loan in the form of VA Renovation or FHA 203k and can allow loan to values as high as 100%. These types of loans will require that the Homeowner work with a licensed contractor to secure a construction contract for the scope of work desired. The Lender will then deliver the construction contract to the appraiser so they can assess the new value of the home, as if the work has already been completed. Especially when making additions to your existing home, you may need the added value from your improvements to gain the higher cash liquidity needed to fund your project. In addition to being used as a refinance for an existing Homeowner, renovation loans can be used in a purchase setting for a Homebuyer. Renovation loans allow for owner-occupied as well as investors, so using them in a purchase situation to solve for sales where the home may not pass traditional appraisals is ideal. Homes being sold as “contractor’s special” and homes that “need TLC” are perfect for this. Renovation loans are approved by the Lender “subject to” the work being performed, so no work is performed until after closing and you become the new owner. Once the transaction goes to closing, the seller’s proceeds will be paid out, just like a traditional sale. Then, the Lender will fund the amount of the construction contract (plus any required contingency funds) into a separate escrow account, through which the Lender will allow the contractor to take draws as renovations are completed. These mortgages come in 30 year fixed loan terms and are fully amortized with principal and interest payback to protect you against rising interest rate environment climates or the need to refinance in the future.

Come join me Friday, November 4 and let’s explore these strategies and more together!

Email me or our registrar directly at GSlabiak@prmg.net to reserve your seat today – it’s free!

The key to navigating the changing mortgage climate is to be sure to align yourself with a knowledgeable mortgage expert that can lead you to financial success. At PRMG, our motto for 2022 is No Homeowner Left Behind, because we pride ourselves in offering traditional as well as creative financing options for those who may find themselves “outside the box”.

We have a dedicated team of Mortgage Experts to help you and we offer free consultations! Visit https://oahu494.prmgapp.com/HonoluluTeam.html today to book your appt with one of our Specialists!

We have a dedicated team of Mortgage Experts to help you and we offer free consultations! Visit https://oahu494.prmgapp.com/HonoluluTeam.html today to book your appt with one of our Specialists!

Questions for Judy Meredith? “The Mortgage Professor”

Email me: I welcome the opportunity to help You find solutions! jmeredith@prmg.net

Judy Meredith
“The Mortgage Professor”
PRMG Hawaii Area Manager
Direct: (808) 222-7903
NMLS ID: 716323