Frequently Asked Questions
on Renovation Refinance
What if any plans do you need from us to figure out our loan amount once we're pre-approved?
The architectural plans are what I will need, even if you have not yet submitted them to the City.
If we pay out of pocket for design and build, at what point can we get reimbursed for that once the loan is approved?
You get ‘reimbursed’ for those fees when the loan closes from the loan funds, so long as we can fit it in the budget.
There are costs coming up during architectural planning. Do people pay these costs out of pocket in the beginning or from the loan funds?
Yes, this is very common. And most often we can ‘reimburse’ them when the loan closes via the loan funds.
How long does this renovation refinance take?
If we are doing a renovation refinance, then we will need 60-90 days. That’s because we need all the details of the construction bid, HUD Consultant review, appraisal and mortgage numbers to match. It’s a lot of collaboration and nearly 100 pages of numbers, but we can make it go faster when we collaborate closely.
Is a Renovation Loan separate from my first mortgage?
No, it is a refinance of the first mortgage based on future appraised value.
If I don't own the property, is there a loan to build an ADU?
Unfortunately, no. You would need to team up with the property owner to refinance and build the ADU. We CAN title the property Tenants in Common, so you own the ADU and the current owner continues to own their primary home and land.
The project is estimated to be $100,000. Can you show me what the payment might look like during the construction phase and what it might look like after it’s completed?
A typical monthly cost of the ADU, when financed as part of a renovation refinance is $500. We offer a complimentary rate & term refinance when construction is completed, and that typically brings your monthly cost down to $450. Conversely, every $10,000 in construction costs $50 and $45 per month, respectively.
What if the estimate of the project goes up or down during construction? How does that affect the mortgage payment?
We require a 10% contingency buffer in case of cost overruns. For a $100,000 project, that means a $10,000 contingency fund. If you don’t use those funds, they are added back into the principal of the mortgage.
Would I be able to take any cash out on a renovation refinance?
Unfortunately, no, but we can include renovations on other parts of your house. In fact, it’s a good opportunity to think about strategic renovations including:
-
50-year roof
-
Solar
-
Aging in place renovations
-
Deferred maintenance
Actually, we could just include that! Absolutely!
Can we roll closing costs into the loan?
Yes. The ONLY out of pocket cost you will have is the appraisal. If we do a renovation refinance, you will also need to pay a HUD Consultant but that is reimbursable as part of the loan. Our goal is to pay for 100% of your costs, except the appraisal.
Will the property taxes increase dramatically?
Nope. You home and land (which is the most expensive part) stay at the same tax rate. Your new square footage of the ADU is taxed at today’s rate, and they are blended together. We do not see a large increase. You can call your County Tax Assessor and they will estimate your new payment.
What happens when the project has been paid off a few years from now? Does the mortgage payment drop down whatever the monthly payment was for the ADU?
This is a refinance with a 30 year fixed mortgage, so your payment would be the same. However, mortgage insurance is eliminated anytime a property reaches 80% loan-to-value, which might reduce your payment if you have less equity. Moreover, we have a Lifetime Guaranty on our loans, so you can refinance in the future for any reason with no lender fees.
Is there a difference if the ADU is attached or detached to the primary home?
It’s DEFINITELY cheaper and better to finance it as attached if you can swing it. We can finance up to 110% of future value (which provides more budget) at typically .5% lower. However, if the ADU is detached, we’ll provide a complimentary rate & term refinance after construction is done to reduce your interest rate.