When some major remodeling is undertaken home improvement loans are not enough for financing all the costs. Construction loans specially tailored for major remodeling are available though and are perfect for this purpose. These loans provide all the money needed for purchasing the property and then undertaking the major remodeling project that requires additional funds.
There are many options for those who want to do some major remodeling on an existing property. These loans provide a wide range of benefits to ease the demanding financial needs of a remodeling project. There are even constructions loans that do not require payments all the way through the construction phase so you can concentrate on optimizing the construction works.
Financing The Purchase And Remodeling Of A Property
You can obtain high loan amounts so as to pay for the purchase price of the property plus the costs of construction. Varied loan amounts are available that can reach up to $3,000,000. This can be done because the loans are based on the projected value of the finished property rather than on the purchase price of the existing property.
There is however a loan to cost limitation which is usually 95%. This means that the amount of money you will be able to get will not exceed 95% of the overall costs including the purchasing of the property and its remodeling. Therefore, you will need the equivalent of 5% of the overall costs of the project in cash prior to starting the major remodeling project.
Financing The Remodeling Of An Already Owned Property
It is also possible to obtain a construction loan to remodel a property that you already own. You can also use the money to construct on the same land, either another property or an add-on to the existing one. And all of the costs of such enhancements can be obtained from a construction loan. This is especially great for those who do not have enough equity on their property to resort to equity loans or mortgage loans.
However, loan to cost limitations still apply to these loans since the loan is still based on the value of a property that does not exist yet. Thus, you will need reserves in order to finance the whole project. However, if you have owned the property for at least a year (some lenders require two), you will be able to obtain 100% financing without difficulties.
Expenses That Can Be Included
There are a lot of different costs that can be included in these loans: The purchase of the land or an existing property, project plans, architect fees, accountant fees, authorization fees, real estate fees, loan expenses like closing costs and administrative fees, etc. Also, the actual costs of the construction: the purchase of the materials, the costs of the material work like wages and contractor fees, etc.
The loan to cost ratio will depend on the loan amount and on the applicants credit score and history. It usually can reach up to 95% of the overall costs of the project but sometimes this limit can be bypassed. This limit includes the reserves for interest and contingency that protect both the lender and the taker during the construction phase of unexpected expenses which on these projects, always occur.