Just purchasing a home as-is often doesn’t give you or your family the features and appearance you need. If you want the home of your dreams, you have two options: building a brand new home or renovating an existing home. Here’s what you need to know.
A Home Renovation Loan vs. a Builder’s Loan
The type of home you purchase determines the type of loan you need. If you’re purchasing a home to renovate it, you’ll need a home renovation loan. If you’re purchasing land with the intent to build a home, you need a builder’s loan. Both home remodeling loans and builder’s loans will have a similar requirement, the difference is in the nature of the loan.
A home renovation loan will include the cost of purchasing the property as well as a percentage of the property’s cost to be used towards renovations. You may purchase a home at $150,000 and get an additional $75,000 to renovate it, with the assumption that he assessed the value of the property will be worth $225,000 after the renovations.
A builder’s loan will include the price of the land and the projected costs of the property. You may purchase land at $50,000 and an additional $150,000 to build the home, with a total loan of $200,000. Frequently, builder’s loans are provided by the builders themselves or the loan is acquired through the builder.
Getting What You Want: a Builder’s Loan vs. a Renovation Mortgage
A builder’s loan can give you everything you want in a home, from the structure of the home to its paint color and flooring. However, that doesn’t mean that it’s necessarily more advantageous than a renovation mortgage. It depends on your goals.
Building a new home often comes with a significant delay. Often, all (or most) of the lots will need to be sold before the building begins, which means you may need to wait a year or two before moving into your new home. A renovation mortgage lets you move in faster; you can move in immediately after renovations are done.
If there are only some minor things that you want to change about an existing home, renovating an existing home often makes sense — the downside is that you don’t have the brand new features (such as a new HVAC system) that a newly built home does. However, you also pay a premium for this; for most buyers, renovating a home is far cheaper than purchasing a new home build.
Home remodel loans can be slightly more complex than builder’s loans, but the process of building a home and customizing it is also more involved. Finally, building a new home also comes with some uncertainties; when you are the first person in a home, you will be the first person to discover many of its quirks.
When Renovating vs. Building Makes Sense
A renovation mortgage makes the most sense when:
- You’re more concerned with upfront costs than the total cost of ownership, and you’re open to making improvements and upgrades later on.
- You’ve already found a home that is almost correct for you, but you want to make some minor-to-moderate modifications to the property.
- You’re interested in getting the most house for your money, and you’re interested in the property as an investment; a new home will start depreciating slightly.
- You’re a fan of older homes and homes with character, as there are some types of classic home build that are no longer still constructed, and there are historical homes available.
- You’re interested in living in an older neighborhood that no longer has a significant amouâ€‹nt of new developments. Most builder loans or for specific projects or constructions, so an older neighborhood may not have any new developments scheduled.
A builder’s loan may make more sense when:
- You have very specific desires when it comes to the structure and layout of your property.
- You haven’t been able to find anything close to what you want on the existing market.
- You don’t want to have to pay for the maintenance and upkeep of your home.
- You want to have the most energy-efficient and newest technologies.
Ultimately, a home renovation loan is going to make more sense for most people. Renovation mortgages give you the opportunity to find a property and tailor it to your needs, especially if there are cosmetic issues to change such as paint and flooring. However, if you want to build your own home from scratch, it may be more prudent to get a loan for a new building rather than trying to renovate the structure of an older building.