PERRA HOME LOANS
Perra Home Loans / Remodel

Remodel, renovation and construction loans

Use the equity you have, or a loan built around the project. HELOC, cash-out, FHA 203(k), Fannie Mae, bank and private-money construction loans.

There are two ways to pay for a remodel or a build: borrow against the equity you already have, or use a loan designed around the project. As a broker, Jevon has lenders for both, from a simple HELOC to FHA 203(k), Fannie Mae renovation and construction programs, bank portfolio programs and private-money construction loans.

Using the equity you already have

HELOC

A line of credit behind your mortgage. Draw money as each contractor invoice comes in and pay interest only on what you have used. Your first mortgage stays the same. This is the most common choice for a remodel. See refinance, cash-out and HELOC for how it works.

Cash-out refinance

Replace your mortgage with a bigger one and take the difference in cash. Makes sense when today's rates are at or below your current rate, or you want one fixed payment.

Renovation and construction loans

FHA 203(k)

One FHA loan that covers the purchase or refinance of a home plus the cost of the repairs. Built for owner-occupied homes. The limited version handles smaller, non-structural work; the standard version handles bigger projects with a consultant overseeing the plans and draws.

Fannie Mae renovation and construction

Conventional programs that roll the renovation budget into the mortgage, or finance building a home and convert to a permanent loan when it is done. Useful when FHA does not fit the borrower or the property.

Bank portfolio programs

Some banks keep construction and renovation loans on their own books with their own rules. These can fit projects that do not match agency guidelines.

Private-money construction

Faster, more flexible money for builds and heavy rehabs, usually short term with a plan to sell or refinance when the work is finished. Investors buying and renovating can also look at bridge loans from My Bridge Loans.

Buying a home that needs work

A renovation loan lets you buy and fix in one loan. Or buy with a standard purchase loan and use a HELOC later once you have built equity.

How construction and renovation loans work

  1. Plans and budget. The lender reviews the contractor's bid, the scope of work and the plans.
  2. Appraisal. Many renovation loans are based on the value after the work is done, not just today's value.
  3. Closing. The purchase or refinance closes, and the renovation money is set aside.
  4. Draws. The contractor is paid in stages as work is inspected and completed.
  5. Completion. Final inspection, and the loan becomes a regular mortgage.

Pitfalls to watch for

No room in the budgetRemodels almost always find surprises behind the walls. Borrow enough to cover a contingency, or have savings set aside.
Unpermitted workWork done without permits can lower an appraisal, cause insurance problems, and slow a future sale or refinance.
Paying the contractor too far aheadPay as work is completed, not in large amounts up front. A HELOC makes it easy to draw only what each stage needs.
Over-improving for the neighborhoodA house remodeled far beyond the homes around it rarely sells for the full cost of the work.
Choosing the wrong loan typeHELOCs and cash-out loans are based on today's value. If your budget only works on the finished value, you need a renovation or construction loan built for that.
Picking a contractor the lender won't acceptRenovation and construction lenders review the contractor's license, insurance and bid. Get your contractor's paperwork in order early.
Underestimating the timelinePlan reviews, permits and inspections between draws take time. Build that into rate locks, leases and moving dates.

Questions people ask

Do you offer construction loans?

Yes. Jevon brokers construction and renovation loans through lenders that offer them: FHA 203(k), Fannie Mae renovation and construction programs, bank portfolio programs and private-money construction loans. Which one fits depends on the project, the property and your plans.

What is an FHA 203(k) loan?

An FHA loan that combines the purchase or refinance of a home with the cost of repairs or renovation in one mortgage. It is for homes you will live in. A limited version covers smaller, non-structural projects; the standard version covers larger work.

Should I use a renovation loan or a HELOC?

A HELOC is usually simpler when you already have enough equity. A renovation loan helps when you are buying a home that needs work, or when the project costs more than your current equity allows, because the loan is built around the plans and budget.

Is a HELOC good for a remodel?

Often, yes. You draw money as the contractor bills you and pay interest only on what you have drawn, which fits the way remodel costs come in.

Will a remodel increase my home's value?

Some projects add more value than they cost and some do not. Kitchens, bathrooms and added living space usually help. Work done without permits can hurt value and cause problems when you sell or refinance.

Can I borrow against the value after the remodel?

Most HELOCs and cash-out loans are based on the home's current value, not the value after the work is done. Plan the budget around what you can borrow today.

More guides

Home purchase loansRefinance, cash-out and HELOCReverse mortgagesSelf-employed home loansDenied for a mortgage? What to do nextFHA vs conventional loans