What to Know When Building or Renovating a Home
March 12, 2024
Some want to build a home from the ground up, and that job requires an FHA One-Time Close construction loan. Others want to renovate an existing home using an FHA rehabilitation mortgage or its refinance equivalent.
Some choose to renovate because they assume the job will be faster and cheaper than building an entire new house from the ground up. What’s the reality?
Renovation Times vs. Construction Times
Census Bureau data indicates a 7—to 8-month window for construction loans for single-family residences. That time frame may be idealized and may not take into account permit processing times, supply chain problems, or other potential delays, but as a benchmark, it’s a good place to begin your research.
How long would renovating a house using an FHA 203(k) rehab loan take? That depends on the scope of work, but an extensive project modifying load-bearing walls could take as long as six months, according to some sources.
While building on your own lot, you know the project will definitely take longer than the limited remodeling you would need if no load-bearing walls or other major construction is needed.
But if the fixer-upper requires more than cosmetic or minor corrections, could the time frame for building new be closer?
In some cases, yes, and in some cases, no. However, you should consider that aspect of the project carefully before deciding.
Anticipating Future Expenses
In many cases, it’s not accurate to compare the price or time commitment of a rehab loan to an FHA construction loan.
There are different issues depending on the nature of the remodeling, but one thing is common between the two loan types. And that has a lot to do with where your loan funds go and how they are used during the project.
Your loan money will remain in escrow and contractors are paid in “draws” approved by you and the lender.
The borrower must, for both rehab and construction loans, pay for inspections, the materials contractors need to do the work, and there may be pest control or flood zone determination costs to pay depending on circumstances.
Buying and remodeling an existing home could cost some borrowers less than building from the ground up.
However, new construction borrowers will know exactly how old their roof, plumbing, and electrical systems are and have a better idea of when they need replacing. In some cases, that’s not a deciding factor, but for a certain kind of borrower, that detail may be critically important.
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When Do You Need a Cosigner?
Analyzing Your Debt Ratio
Some choose to renovate because they assume the job will be faster and cheaper than building an entire new house from the ground up. What’s the reality?
Renovation Times vs. Construction Times
Census Bureau data indicates a 7—to 8-month window for construction loans for single-family residences. That time frame may be idealized and may not take into account permit processing times, supply chain problems, or other potential delays, but as a benchmark, it’s a good place to begin your research.
How long would renovating a house using an FHA 203(k) rehab loan take? That depends on the scope of work, but an extensive project modifying load-bearing walls could take as long as six months, according to some sources.
While building on your own lot, you know the project will definitely take longer than the limited remodeling you would need if no load-bearing walls or other major construction is needed.
But if the fixer-upper requires more than cosmetic or minor corrections, could the time frame for building new be closer?
In some cases, yes, and in some cases, no. However, you should consider that aspect of the project carefully before deciding.
Anticipating Future Expenses
In many cases, it’s not accurate to compare the price or time commitment of a rehab loan to an FHA construction loan.
There are different issues depending on the nature of the remodeling, but one thing is common between the two loan types. And that has a lot to do with where your loan funds go and how they are used during the project.
Your loan money will remain in escrow and contractors are paid in “draws” approved by you and the lender.
The borrower must, for both rehab and construction loans, pay for inspections, the materials contractors need to do the work, and there may be pest control or flood zone determination costs to pay depending on circumstances.
Buying and remodeling an existing home could cost some borrowers less than building from the ground up.
However, new construction borrowers will know exactly how old their roof, plumbing, and electrical systems are and have a better idea of when they need replacing. In some cases, that’s not a deciding factor, but for a certain kind of borrower, that detail may be critically important.
------------------------------
RELATED VIDEOS:
Here's the Scoop on Conventional Loans
When Do You Need a Cosigner?
Analyzing Your Debt Ratio
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