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How to Finance a Renovation

January 6, 2015

So, you have big plans.  You want to make your home spectacular but before you can do anything, you’ve got to figure out how to pay for it.  Darn money.  Always getting in the way.

Well folks, there are several ways you can do it.  If you’re independently wealthy or have recently had the good fortune of winning the lottery, no problemo!  We Staggs are neither of those so for each of our remodels, we’ve had to figure out what works best for us.  Today I’m sharing what we’ve learned about how to finance a renovation.

financing a renovation

Most often, we have lived in a property while remodeling and paid for each project as we went along.  This is a great way to not get in over your head, pay with cash (or pay with a credit card then pay it off each month if it has reward benefits, which is what we usually do), and have the convenience of working on projects and spaces when you have time, can afford it, and go at your own pace.  It often does take longer, but it has worked well for most of the properties we’ve tackled.

Another option: lenders are now offering a home renovation mortgage, which allows you buy a house and have a certain amount of money for renovations before you move in.  This is a great way to do it for a lot of people, but didn’t work for us because of the size of our renovation.

With our new/old home, we are financing the remodel with a construction loan.   We did this for a few reasons but this was the biggest:  There was no possible way we could live in this house while we remodeled.  It was beyond living conditions and while Jon and I could have maybe roughed it (we actually lived in a house with no kitchen– only a functioning bathroom– for a short period of time, while I was recovering from a surgery.  That’s a story for another day.), but add in a little toddler who doesn’t handle disruption well and a newborn and yeah, it wasn’t going to work.  Plus, we were going be removing portions of the roof and house for additions and that means no heat in the middle of winter.

Getting a construction loan requires two closings: one for the construction loan and one for the traditional loan.  The closing costs do add up, but we did it this way in order to finance all of the renovation costs at once.

Because we did it this way, we need to have all of the major construction done, as well as the great majority of finishes, completed before we move in.  Much of the planning was front loaded.  Here’s what I mean:

When you line up remodel construction financing, you need to have everything lined up– every bid, every estimate, every plan, e.v.e.r.y.t.h.i.n.g before you close on the house.  Let me repeat that.  The lender wants to make sure they know you know what you’re doing before you do it.  And this process takes a while.  I had to select finishes down to types of tile and light fixtures for the estimates.  There is a bit of flexibility, but it needs to be pretty close price wise.

The first step was finding an architect, putting together plans (which I talked about yesterday), and coming up with estimates for work to be done such as framers, plumbing, electrical, HVAC, roofing, exterior finishes, excavation, and so on.  Then I went room by room and made plans for everything we wanted to do, as well as the types of finishes we wanted.

Once all of the bids were in, we submitted it all to the lender to make sure they were satisfied.  We will pay a fee to the third party lender, which is calculated into the loan.  From the date we closed on the house, we have 6 months to finish everything and move in or we accrue some pretty hefty fees.  We are motivated to move really quickly on the house not only because of the fees, but because we have a new baby coming and are anxious to get in the home and feel settled.  Ok maybe that’s mostly me, but I hate not feeling organized and comfortable and not being able to nest is eating at me.  I can’t wait to move in!

I hope this information was helpful for anyone looking to renovate a home!  Tomorrow I’ll have another space reveal of the (very) ugly before.

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  1. Shavonda says:

    Loved this post Jen. We almost went with a construction loan when we purchased our bungalow. We decided against it because we really wanted to keep our mortgage and payments super low. I love that you shared this information though. So many people feel like a reno is unobtainable.

  2. Kristy says:

    Do you know about how much your Reno will cost? We haven’t looked into construction loans but may now but do you have an idea with how much you are doing of what the cost will be? If too personal, I understand! Just want to kind of help my plans!

    • Jen says:

      Hi Kristy, thanks for following along! Each reno is so individual with cost. It depends so much on the extent of what you’re doing, the size of your home, the finish you plan to do, etc. I would hate to tell you one amount and have it end up costing you another. Does that make sense? Sorry that isn’t much help!

  3. Heather says:

    How do you buy the property before someone else scoops it up while gathering all the information on a construction loan?

    • Jen says:

      Hi Heather, we were lucky to find a patient seller who worked with our timeline on closing the loan. Our seller liked us and wanted us to get the house, and liked the price we settled on, so they were willing to be flexible on the closing date. We asked for a longer period between signing and closing than usual, and we had to push the date back because the construction loan took longer to close than we expected. Every deal is different of course, but it is helpful to be up front with the seller about your timeline from the beginning of the process. If the seller wants to get the deal done, they will most likely be patient. Good luck!

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We're a full-service design firm and home furnishings shop built around the philosophy that a well-designed home should be beautiful, personal, cohesive, and complete. We think home is the most important place on the planet and when you live in a home that is perfectly you, it changes your life. Don't believe us? Stick around. We're confident we'll change your mind.

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