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STEP 1: Application & Approval
[Note: If applying for a refinance vs. a purchase, Step 1 & 2 switch places.] Applying for a renovation mortgage is no different than applying for a regular mortgage. You will need to apply on-line; provide all requested documentation, and answer a few questions off the application site before we can complete your application. Once we have secured an electronic approval (called DU or LP), and completed your application for print, we will send it to you to review, sign and return. Only when you have signed and returned the application, is this step completed and the loan ready to be submitted to processing and underwriting.
STEP 2: Bid & Work Write Up
[Note: If applying for a refinance vs. a purchase, Step 1 & 2 switch places.] If we have not yet completed a loan consultation, any questions prompted by the following information can be discussed at that time, and of course you can call me anytime.
It is important to understand that every renovation mortgage requires a bid from a licensed contractor, with very rare exceptions. The reason for this step is that it would be otherwise impossible for an underwriter and an appraiser to gauge the future value and condition of the property without the data in the contractor bid.
Licensing guidelines vary from state to state. There is a sample contractor bid with instructions and tips on my site you can review and share with your contractor. Depending on the type and size of your renovation budget you may also need a Work Write Up (WWU), which we will assist you in securing. The WWU must be completed by a third party Renovation Consultant, and that person should be paid at the time of inspection. The WWU fee, though paid in advance, is technically a financeable fee, and will be reconciled prior to closing.
STEP 3: The Appraisal
Step 3, The Appraisal is handled by us the mortgage company. There are two important things to remember about this step: A) WE CAN'T ORDER THE APPRAISAL WITHOUT THE CONTRACTORS BID, and B) the appraisal will be completed as if all the work to the home outlined in the bid has been done...even though it has not. This is the beauty of a renovation loan - it is based on and secured by the future predicted value and condition of the home, which allows you to borrow against the home now, in its "as-is" condition.
Please remember that the bid has to be acceptable before we can order the appraisal. In other words the work being done has to be clearly spelled out, if even in minimal terms. If you are borrowing for a refinance we may also need an appraisal stating the "as-is" value, as some loan guidelines require that. Finally, as stated in Step 2, you may need a Work Write Up in addition to the bid, but in most cases, we can order the appraisal in advance of receiving that document.
STEP 4: Project Management
Project Management is my term, so you may not see it listed anywhere else. This step is where you and the contractor (mostly the contractor) fill out lender provided forms, submit copies of the contractors license and insurance (unless you are providing the insurance...very rare) and then we review those documents to do our best to make sure that the contractor is experienced, reputable, and financially viable. It is important to remember that you too should research your contractors credentials by checking with such sources as the BBB, your local or state contractors boards (different names depending on locale) and of course contractor provided references. If ever a contractor you elect to work with has any questions about the loan and draw process, they are welcome to contact me.
STEP 5: Close & Renovate
Now that the first four steps are complete, it is time to close and fund your renovation mortgage. Once your loan is deemed clear to close, and we send out the Closing Disclosure (CD), then a closing date can be set. Once your loan closes and funds, your seller is paid, and you take over ownership of the home. If the loan is a refinance, then we will pay off current liens on the home (if any). Additionally, the money that has been approved and earmarked for the renovation of your home will be set up in an interest bearing escrow account with our draw department. Typically within 72 hours of the loan funding, you will be contacted by a draw specialists in a our draw department giving you instructions on how to make a draw, when you have to complete the work by (the same date you and the contractor told us in most cases) and what documentation is required to complete each draw. Some renovation loans do allow for an advance draw and the draw specialist will walk you through that as well. The most important part of what happens next is to make sure your contractor stays on the job; does quality work; and that you all communicate clearly and often. I look forward to hearing back from you once your project is complete. Happy renovating!