Informative Guide: Home Renovation Loans

Niv Ovadia
August 26, 2022
Est. Reading: 3 minutes

Financing a complete home renovation is no easy task, especially in California. Your mind is soaring with countless ideas and project concepts that you want to implement that will truly encompass your “dream home”.

On top of all those ideas, you also have to worry about finding the perfect loan solution so your financial situation doesn’t plummet back down to zero! This is where we come in. 

PMA’s Residential Bridge Loan solutions are personally curated for each of our client's needs to assist in the financing of their fully-loaded home remodeling/renovation projects. We aim at taking the hassle of financing away from your mind so you can focus on blueprinting that perfect dream home.

Below is a guide we created to equip our clients with the information they need to help streamline the stressful process of renovating a home. 

What is a Home Renovation Construction Loan? 

Essentially, a construction loan is a short-term direct money loan that is used in covering the costs of a custom home renovation project. This type of program is typically issued and utilized for around a year. When dealing with a construction project, the person must understand that it takes advantage of the projected increased value of the home after renovations are completed.

Construction loans are supposed to be financed by mortgage lenders like PMA and then utilized by general contractors and construction agencies for specific home renovations. We cater our Construction-Only loans for individuals looking to build a home from scratch or doing large-scope home renovations. 

Key benefits of PMA’s construction loan programs: 

  1. Quick Turnaround: Renovations can begin immediately after closing and funding is received 
  2. Single Loan Process: one loan covers the costs of the previous purchase amount and the valuation of total renovations 
  3. Clarity: Just one application, one closing, and one monthly payment
Home Renovation Loans

Picking the right type of Construction Loan: 

Pursuing a construction loan might not be for everyone, but that does not take away from the fact that there are a set of real-life situations that can complement the pursuit of a construction loan for a home project. These results are written by real-world examples that our PMA partners have dealt with and managed for their clients.  

Terms to know: 

70% Loan To Cost (LTC) = The loan amount divided by the total cost of the project 

60-65% Loan to Value (LTV) = Loan % of future valuation of property after construction is complete. 

Home Renovation Loans

  • This type of loan is for people who are looking to renovate entire bathrooms, bedrooms, kitchens, etc. to their existing properties. 
  • Single Loan that takes into consideration rolling costs of future property valuations after renovations are completed. 
  • This is for homeowners looking to get a construction loan for an addition to their property, examples:
  • Another bedroom, backyard extension, kitchen addition, construction loan for remodeling
  • Anything that will add value to their existing property upon completion
  • A short-term loan will cover up to 70% LTC and up to 65% LTV
  • Fix-and-Flip Loans and renovation construction loans

Ground-up Construction Loans

  • This type of loan is for people who have single-family, multi-family, and mixed-use projects that are already entitled or shovel-ready. 
  • Real estate investors with detailed project plans for construction in place will benefit from this type of loan. 
  • A short-term loan that covers up to 70% LTC and up to 65% LTV 

Construction Completion Loans

  • This type of loan is for people who purchased a property with a previous construction loan but ran out of money before completion due to cost over-run or various other reasons. For example:
  • You have a property that is 80% completed with no loan money left to complete the project
  • PMA comes in to save the day and provides construction completion loans to pay off an existing loan and additional money to finish the project.
  • Short-term loans up to 70% LTC and up to 60% LTV
Kitchen Renovation Completion

What to look for in a Remodeling Contractor? 

  1. Credentials: positive ratings and word of mouth are ideal, do as much research as you can when deciding who will be remodeling your dream house. Ask everyone around you if they have a good recommendation and search locally for individuals who know your location best
  2. Always ask for estimates: Getting written estimates from multiple contractors and creating a pros and cons list is always a good measure when tackling such a big project. Be as thorough as possible. 
  3. See previously completed work: Ask the contractors if they can show you previous work completed and explain the time frame and processes it took to complete such a large project. 
  4. Professionalism: Most importantly, take notice of the attitude and condor of the contractor themselves. You always want to work with an individual who holds themselves to a higher standard, it will show through their work. 
Construction Loan Completion
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