McDonnell Group Practical Guide to Renovation Loans 4.13.18 - Flipbook - Page 6
WHAT COSTS ARE INVOLVED?
Total Rehab
Costs Defined
Total rehabilitation costs are an important factor to consider on the road to
renovation, and It's important to understand what they are and where they
come from. Rehab costs will fall into one of the basic categories below:
Renovation Fees. Permit fees, engineering fees, architectural fees,
inspection fees and other costs associated with rehabilitating the home that
don't consist of labor or materials. You may have already paid some of
these costs upfront. If so, the paid items will be deducted from the final
estimates at closing.
Cost of Repairs. The actual cost of the renovation covering all labor and
materials for the project. Typically, you will enter into an agreement with a
General Contractor to complete the renovations. This contract will list &
itemize the work to be done and costs associated with the project.
Closing Costs. These are costs associated with the closing of the loan.
such as title & escrow fees, Lender fees, appraisal costs, etc.
Home Purchase Price
S500,000
Cost of Repairs
S80,000
Contingency (10% of Costs)
$8,000
Closing costs
$10,000
Renovation Fees/Inspection Costs
S2.500
Total Costs
$592 ,500
Appraised Value (Subject To Repairs)
$580,000
FHA Minimum Down Payment (3.5%)
$20,300
Loan Amount
$559,700
Prepaid Expenses. Often confused as closing costs, prepaid items
are additional property costs that are prepaid in advance, like homeowners
insurance, property taxes, etc.
Contingency Reserve. A reserve account to cover unforeseen cost
overruns during the renovation project. The Lender requires 10% of the
cost of repairs to be held in reserve in the renovation account. If the utilities
are off at the time of inspectio, an additional 5% reserve (total 15%) is
required. Once the project is complete, any remaining reserves can be
used to make additional improvements to the home, or used to reduce the
principal balance of the mortgage loan.
Mortgage Payment Reserve. If the home cannot be occupied during
the renovation period, the Lender will allow an amount equivalent to the
new mortgage payment (up to 6 months) to be financed into the loan. This
reserve will be used to pay the monthly mortgage payment during the
renovation period so you're not forced to make a payment on a home
that's not ready to live in just yet.
Base Loan Amount. If you own the home, your current mortgage
balance along with renovation costs are financed into a new loan. When
buying a home, the purchase financing & renovation costs are combined.
Maximum Loan Amount. The maximum loan amount is based on total
project costs, and is determined by county loan limits and the maximum
loan-to-value (LTV) limits of the specific loan product.
To learn more, call us at 714.559.3696 or visit us
online at www.financemyimprovements.com
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