Rehab and Renovation Loans in Washington, Oregon and Idaho

The basic sequence:

• Choose a contractor and get a detailed written bid before closing.
• The appraiser values the home as it will be after the planned work.
• At closing, the purchase or payoff is funded and the renovation money goes into an escrow account.
• As work is completed and inspected, funds are released in draws.

Most programs include a contingency reserve for surprises, and some allow a short period of mortgage payments to be financed if you cannot live in the home during the work. Timelines are longer than a standard loan, so plan for that in your offer.

The limited 203(k) covers projects such as kitchens, baths, flooring, roofs and paint without structural work. The standard 203(k) handles larger projects, including structural repairs, and requires a HUD-approved 203(k) consultant to oversee the work. Both follow FHA's usual down payment and mortgage insurance rules: 3.5% down for qualifying credit, based on the purchase price plus renovation cost.

HUD's 203(k) program page (opens in a new tab) has the current rules and limits. FHA loan amounts are capped by county FHA limits.

Conventional renovation loans can be used for a primary residence and, depending on the program, for second homes and investment properties. Private mortgage insurance follows the usual conventional rules and can be removed once you reach enough equity. Luxury items that FHA does not allow, such as a pool, are often eligible. See Freddie Mac's CHOICERenovation overview (opens in a new tab) and the Fannie Mae Selling Guide (opens in a new tab).

Some lenders also offer VA renovation financing for eligible veterans; ask Frank whether it fits your project.

A renovation refinance can make sense when you want to stay in the home, the improvements add value, and a separate home equity loan or cash-out refinance would cost more. Compare the options with the refinance calculator, then let Frank price them side by side.

Tips from experience:

• Get bids early and make them specific: materials, quantities and a timeline.
• Expect the lender to review the contractor's license and insurance.
• Build in time for the appraisal, which values the finished home from the plans.
• Keep a cushion of your own cash for changes not covered by the contingency reserve.

Renovation loans are offered by fewer lenders than standard loans, and their rules on contractors and draws differ, which is a good reason to compare. To talk through a project, start a quote or schedule a call. Any figures before underwriting are estimates only, not a commitment to lend.