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Renovation Loans vs HELOCs

is there a difference? by ber.fishman427 from Victorville, California. Apr 30th 2020 Reply

Hans Bruhner (Hans Bruhner)
#133 ranked lender in California - 125 contributions

There is a large difference. There are pros and cons for both. The HELOC is a line of credit extended to you based on the equity of your home and works a lot like a credit card. If you house is worth 500k and you owe 300k on your mortgage then you can get 100k HELOC and you only pay on the amount you have drawn. These are usually adjustable rate mortgages.Renovation loans you can use to refinance or purchase a home and let's say you owe $300k on a $500k home and you want to do $100k of work. We would lend you $400k and the first thing we do is pay off your current loan and then we dole out the fix up costs as you go and eventually, your work is done and you owe the total $400k but it is a 30 year fixed rate and just one loan on the house. We also lend on the AFTER value of the hose so many times this allows you to borrow more than a HELOC since that loan amount is determined on the current value.The downside is that you ave to submit plans and get them approved by the lender and then we dole out the money based on progress of construction.If you have a great current loan and you want to do a small amount of work then a HELOC is usually better for that. If you do not have a low rate loan now and you want to do a smaller amount of work then maybe a cash out refinance is better since it will be one loan and then you will have a chunk of cash to do what you want on the house with no one looking over your shoulder.

Apr 30th 2020
Dan Paladin (dpaladin)
#1 ranked lender in California - 739 contributions

Short answer is Reno loan is a fixed rate that takes into account the renovation costs based on after repair value. The Heloc is variable 2nd lien. Rate is based on prime plus the margin the lender applies. Your max line on the Heloc will be based on the equity you have in your home as is. For complete details feel free to contact me 562.254.5616

May 1st 2020
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