Construction loans can be acquired for finishing your basement, adding a sun room, or completing some other type of smaller scale home renovation.

Because these types of projects tend to require less capital than full scale remodeling or actual home construction, the related construction financing will likely be much more straight forward to secure and manage.

If the project is going to be completed in a matter of a few weeks, then there will likely be one set of disbursements to consider, so a formalized draw schedule will not be required, greatly simplifying the overall loan administration process.

While these types of projects will likely increase the value of the home, the actual construction work  is not going to create a significant risk to the long term value of the property making the financing process much simplier.

Typically, small scale home renovations are financed in one of the following four ways:  1) refinancing of the first mortgage; 2) second mortgage with a fixed interest term; 3) home line of credit; 4) an unsecured personal term loan or line of credit.

Depending on your level of income, debt load, and credit rating, you may just be able to get an unsecured term loan or line of credit to complete the work.  If the repayment period is expected to be more than one year, you may want to set up a term loan and establish a set monthly repayment that fits your projected budget.

If the costs of renovations are expected to be paid for in less than one year, but an unsecured loan is not available or cannot be secured for a low enough interest rate, then a home line of credit where a second mortgage position is registered against the property would be the likely mortgage financing solution.

For a repayment period greater than one year, a longer term mortgage would be considered as a secured construction loan whereby a higher potential amount of borrowing and lower interest rates can be obtained.

The choice of refinancing the first mortgage or taking out a second mortgage will depend on the net cost comparison of the two options.  Whichever solution creates the most net benefit is likely the one you should secure.

As the size and scope of the renovation project increases, so does the requirements of the lenders providing construction loans.

For more information on what construction financing approach you should be taking, I suggest you give me a call so we can go through your situation together and determine the best solution for your project financing needs.

Click Here To Speak To Construction Financing Expert Joe Walsh

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