The Benefits of Renovation Loans

The Benefits of Renovation Loans
The Benefits of Renovation Loans

The Benefits of Renovation Loans

In a hot real estate market such as Wilmington, North Carolina, where conditions are generally favorable for home sellers, it’s not uncommon to hear about a home going under contract within a few days, or even a few hours.  Of course, this creates a significant amount of frustration for buyers who are actively searching for Wilmington real estate.

The Fear of Missing Out is real, especially for those who have experienced the pain of losing out on the home of their dreams.  Sometimes, it simply isn’t possible to make an offer fast enough, or keep pace with the frenzy of a multiple offer situation as prices skyrocket. 

The inventory of well-located homes in Wilmington that are priced under $350,000 and have updated interiors is very low.  The result is a hot market where new listings sell fast.  So what is the buyer with a very specific neighborhood in mind to do?

A renovation loan could be the best possible solution for a buyer with budget constraints and a favorite neighborhood.  Renovation loans offer a wealth of advantages for buyers of Wilmington real estate, such as:

·         Less competition for available properties in great neighborhoods,

·         The chance to customize updates, colors and amenities according to your own individual taste and preferences, and

·         Better interest rates for renovations compared to credit cards or home equity lines.

The pool of buyers with interest in homes that need renovating is much smaller compared to homes that are in great condition.  This results in a much stronger and more relaxed negotiating position for buyers.

With a renovation loan, the funds that are needed to bring the home up to date are set aside at closing into a trust account and rolled into the entire loan amount.  The contractor in charge of the renovations has the authority to draw funds out of the trust at specified intervals (informally known as the draw) in order to pay for his fees and the cost of materials.

The savings that can be achieved with a renovation loan versus financing through credit cards or other forms of credit can be substantial.  This makes renovation loans an extremely viable, attractive course of action for buyers who want to live in a specific location but do not have the requisite funds to cover an extensive home remodeling project out of pocket. 

In most cases, the process begins when a buyer finds a home that meets their needs, yet requires some of the major systems to be repaired or replaced.  The first step for a buyer in this situation would be to contact the mortgage broker they are working with to let them know they want a renovation loan. 

The next step is to connect with a licensed general contractor and arrange for a tour of the property with them, to get a quote for the necessary repairs and the desired updates.  My role is to help you decipher your options, decide on a course of action, and create a market value analysis of the home’s current and future value based on recent comparable sales.  

The loan application has to include the quote from the contractor and the estimate of the home’s current market value, along with the estimated future value of the home after the repairs have been completed.  There are many variables involved but the takeaway is that, as long as the value of the home after the repairs are completed is close to the value of comparable homes in the neighborhood with similar upgrades, everything should be OK.

If the market value is not aligned, the buyer will have to answer a few tough questions, such as:  “Am I willing to bring more money to closing so I can have the repairs I want?”  Or, “Can I live with taking some of the items that I wanted to have done off the list, so that I can buy the home without having to bring a significant amount of funds to the closing table?”

Renovation loans are an excellent financing tool for buyers who want to live in a specific neighborhood and fed up with losing out in multiple offer situations.  While other buyers look to compete and have to spend well over asking price to get the home of their dreams, buyers who use renovation loans are often able to negotiate a significant rebate off the initial asking price. 

For knowledgeable advice pertaining to the purchase of a Wilmington, North Carolina home, or a referral to a local mortgage broker, call Fritts Causby at 858-692-5120 or email