The Work

The Work

1. WHAT ARE “HAVE-TO” AND “WANT-TO” ITEMS

 
During the course of the consultant inspecting the property, they are looking for items that have to be done first. The “Have-To” items could affect the Safety and health of the occupants. Such things might include a new roof, plumbing, electrical, insulation, replacement of broken windows, new finished flooring, interior or exterior paint, or mold. The consultant, along with the appraiser, is protecting the Lenders interest. Ironically, the Lender has a significant stake in the house’s condition. If a person defaults on the Loan, the Lender will have to take the house back and resell the property. The Lender wants to ensure they have a property they can resell. Once all of the” Have-To” items are identified, then the consultant will ask the buyer what they may want to do. The “Want-To” items could include any of the above that are not considered “Have-To” items. They could do plumbing upgrades, electrical upgrades, New Windows, and a roof, in addition to other items on the house that may not have been specifically identified as “Have-To” items. When considering the purchase price of a home, the consultant will evaluate the cost of the “Have-To” items and then determine how much money can go to the “Want-To” items based on the client’s financial qualifications. The best-case scenario is that the home purchaser can incorporate all of their “Have-To” and “Want-To” items into their purchase.
 

2. CAN I DO THE WORK ON A RENOVATION PROJECT

 
Typically, a person would not be allowed to do work on a renovation project. However, your general contractor could allow you to help with demolition or debris removal, which would be very easy to do and are not part of the build-out. It is not recommended that you, as the new homeowner do any of the work as it could impede the progress of the general contractor, and the work being performed must be done to industry standards. The lender might have exceptions allowing a person to do some work. For example, the homeowner is a roofing contractor, and the house needs a new roof. The lender may let the homeowner do the roof, although the lender will not reimburse the homeowner for labor on the roof. Only the materials would be refunded to the homeowner. Even though this is an exception, a person has to understand that if they are doing some of the work and potentially get injured, then the general contractor has to complete the work that the homeowner was going to do. Therefore, virtually no lender will allow a homeowner to do the job.
 

3. IS A GENERAL CONTRACTOR REQUIRED FOR A RENOVATION LOAN

 
Typically, a general contractor is required on a renovation loan program. Most lenders do not allow a homeowner to be their own general contractor or do the work. There are exceptions to this, although they are not the norm. If the renovation only requires, for example, a new roof to be installed, the lender can allow the homeowner to be the contractor. Most, if not all, lenders will require a general contractor on the project. When meeting with the consultant, the consultant can help determine whether a general contractor is needed and relay that information to the lender. However, a contractor will be required a large percentage of the time.
 

4. HOW MANY BIDS DO I NEED

 
A homeowner is not required to get multiple bids on a project. Getting additional bids on the project is advisable, but it is not a requirement. Suppose a person interviews several general contractors and is satisfied with one contractor that they have chosen. In that case, that general contractor will provide a bid that includes the project’s entirety. Again, if a person is happy with just one bid and contractor, they are not required to obtain multiple bids.
 

5. DO I NEED PERMITS FOR A RENOVATION LOAN

 
Not all renovation projects require permits. The consultant, at the time of consultation and inspection of the property, will determine, along with the general contractor, any permits that may be required. The consultant also may inquire into the Municipality, City, or other State requirements about permitting. Everyday things such as electrical, plumbing, HVAC, and foundations would most certainly need to be permitted. However, every Municipality that has jurisdiction may have its requirements. It is advisable to check with the Municipality where the property is located to determine what types of permits are needed. If permits are required for the renovation, the lender will typically release funds for payment once the permits are acquired.
 

6. ARE BLUEPRINTS AND PLANS NEEDED

 
Whether blueprints and plans are required for a renovation project is project dependent. If, for example, you are building a second-story addition to your house, that would need plans and permits before the loan closes. The person should know that the permitting process and drawing up plans take time and should be considered when closing your loan. If the project is structural in nature, meaning that plans and permits are needed, a lender may not close your loan until those plans and permits are issued. The reason is that if the plans or permits cannot be issued, the work cannot be done, creating a problem for the homeowner and the lender. Certain things do not require permits and plans, and consultation with your general contractor and consultant is advisable. Homeowners and or their general contractors quickly obtain some permits, such as electrical, plumbing, and HVAC permits.
 

7. WHO MONITORS THE WORK OF THE GENERAL CONTRACTOR

 
The work on a renovation program is monitored by the consultant. The fee paid to the consultant is part of the consultant's responsibilities to your project. When your project begins, and it is necessary to perform a draw inspection to pay the general contractor, a person would contact the consultant; the consultant would come to the property and document the work that has been done on the property and ensures that the work is being performed in skillful standards. Your consultant is your best ally in monitoring the progress and quality of the work. If a dispute occurs between a homeowner and a contractor again, the consultant should be notified as soon as possible to help mediate any situation.
 

8. CAN OTHER TYPES OF WORK BE PERFORMED WHILE DOING A RENOVATION

 
Other work can be performed while the renovation is being done. However, that work cannot be part of what is specified in the Specification of Repairs (SOR). Any work done outside or in conjunction with the renovation, loan would need to be approved by your consultant to ensure that it doesn't conflict with the overall project.
 

9. CAN RENOVATION LOANS BE USED FOR NEW CONSTRUCTION

 
Renovation loans cannot be used for new construction, although they can be used for a one-year-old or older home. Case in point, renovation loans have been used to complete construction projects that were never finished, although the project is one year old or older. This typically happens when a builder or homeowner runs out of funds and cannot complete the build. It should also be noted that lenders have guidelines to determine whether or not a renovation loan can be used to finish a project. These are referred to as lender overlays.
 

10. CAN AN OUTBUILDING SUCH AS A SHOP BE BUILT

 
An outbuilding such as a standalone shop can be built using a renovation loan. The only requirement is that the first $5000 of the renovation loan must go to the primary home. It is only the $5000 going to the main house; a renovation loan can be used to build a shop. It should be noted that regardless of whether it is a shop or home renovation, the individual will still have to qualify financially.
 

11. CAN A RENOVATION LOAN BE USED FOR ENERGY UPGRADES

 
Renovation loans can certainly be used for energy upgrades. Energy upgrades could include everything from insulation, New Windows, new doors, weather stripping, caulking, sealing, high-efficiency heating, and cooling systems, and hot water systems. A little-known product referred to as an energy efficiency mortgage (EEM) can be used in addition to the renovation loan. An EEM can be combined with a typical renovation loan for energy upgrades. The benefit of an EEM is that if a person's debt-to-income ratio exceeds what they may qualify for, and energy upgrades are needed to the property by using the EEM, the cost does not affect the debt-to-income ratio of the borrower. Thereby allowing the borrower to do energy upgrades. Although if the only energy upgrades being conducted are for installing new Windows, a person could not use the EEM because windows only amortize over a 20-year to pay for themselves.
 

12. WHAT ARE THE TIME FRAMES TO COMPLETE A RENOVATION LOAN

 
The time frames for completion of a renovation loan will vary upon the scope and size of the renovation. The guidelines for completion of a renovation program are typically six months. Although if a person, for example, were only having a roof installed and the exterior of their house painted, that should not take more than approximately 30 days. The consultant is not likely to allow more than a couple of months for a 30-day project. On an extensive renovation program, typically, the consultant will determine the time frames necessary for completion by consulting with the general contractor on his time frame. Again, a renovation should be completed within six months. However, the consultant can authorize an extension for completion if the renovation cannot be completed in six months for extenuating circumstances. This is a case-by-case basis for extension of completion.
 

13. WHAT TYPES OF WORK CAN THE RENOVATION LOAN BE USED FOR

 
The types of work that can be used for a renovation loan can be anything from minor items to significant improvements to the property. A person can install new a new roof, gutters, siding, windows, exterior painting, landscaping, decks, driveways, and external outbuildings as long as the first $5000 goes to the primary residence and on the interior things such as finished floor products and new kitchens bathrooms, heating, and cooling systems, plumbing upgrades, interior painting. A renovation loan can also be used to lift a house off its current foundation and install a new one and all the associated work that would be done with a new foundation.
 

14. WHAT TYPES OF IMPROVEMENTS CANNOT BE USED FOR A RENOVATION LOAN

 
There are very few improvements that cannot be done using a renovation loan. Certain things such as swimming pools, outdoor photo murals, satellite dishes, and other things that may not be part of the permanent property would not be allowed using a renovation loan. The list of things that you cannot do is very minimal.
 

15. CAN A RENOVATION LOAN BE USED TO MOVE A HOUSE

 
A renovation loan can be used to move a house from one location to another location. The only caveat is that the lender will release money for the move until the structure is on its permanent foundation in its desired location. The reason for this is that if the structure were to be damaged or demolished during the move, that would create financial hardship for the borrower because the house had been demolished during the move. Once the home is at its final destination and installed on the foundation, all the money required for the move and foundation can be released for payment.

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