Top 10 Reasons Homeowners Can’t Qualify for a RenoFi Loan
Here’s a list of the most common reasons homeowners are unable to qualify for a RenoFi Loan, as told to us by lenders offering RenoFi Loans.
Did you recently discover that a RenoFi Loan is the best way to fund your renovation? That’s great! Let’s break down the top 10 reasons why your renovation project may not qualify for a RenoFi Loan from a lender.
1. Your FICO score is too low.
A FICO score is just another name for your credit score. Most lenders offering RenoFi Loans require a minimum FICO score of at least 660.
This 3-digit value is based on the information in your credit report that helps lenders determine how likely you are to repay a loan. It measures how long you’ve had credit, how much credit you have, how much available credit is being used, and if you’ve paid on time.
Just like your traditional mortgage, the higher your score, the lower your interest rate will be for a renovation mortgage. Check out this article for ways to raise your credit score quickly.
2. Your Debt-to-Income (DTI) ratio is too high.
The lower your DTI, the better, if you’re looking to qualify for a RenoFi Loan.
If your DTI ratio is above 43%, lenders offering RenoFi Loans are unlikely to approve your application. And remember, the 43% includes the payment for the RenoFi Loan.
Not sure how to calculate your DTI ratio? Your DTI compares what you earn to what you owe as an important measure of your overall financial health.
First, you’ll need your annual income (pre-tax). Then, you’ll need to total all your existing monthly debt payments.
Make sure to include current mortgage payments (your full payment, including taxes & insurance), credit card minimum payments, student loans, car loans, other loans and debt obligations.
You DO NOT need to include utilities, living expenses, and monthly service bills.
Now, enter all the payments into the DTI Calculator below.
Your DTI Ratio:
3. Your renovation is for an investment property or titled in an LLC.
As of right now, Lenders offering RenoFi Loans don’t allow homeowners to use a RenoFi Loan to finance renovations on an investment property or a property titled in an LLC.
4. Your property is in Texas.
Currently, if your home is in Texas, there aren’t any lenders offering RenoFi Loans to homeowners living in your state.
We’re darn’ tootin’ sorry. The RenoFi team is working hard to find lending partners to help our Texan homeowners as soon as possible.
5. You’re renovating a second home.
If you’re looking to finance a renovation for a second home, like a vacation home or any home that you spend time in that’s not your primary residence, unfortunately this is an issue.
We expect lenders offering RenoFi Loans to eventually allow second homes in the future, but they are not there yet. Right now, only primary residences qualify for RenoFi Loans.
6. You are building a home from scratch.
If you’re looking for a loan to build on a plot of land, or to knock down an existing property and start from scratch, a RenoFi Loan is not for you.
Because RenoFi Loans don’t have the typical controls that construction loans have like draws & inspections, RenoFi Loans only work for lower risk projects like kitchens, bathrooms & small additions.
If you’re building a home from the ground up, you will need to look into construction loans that are specifically designed for this type of project.
7. You live in a condo/co-op/multi-unit property.
Unfortunately, lenders offering RenoFi Loans don’t yet allow these loans to be taken out for condominiums, co-ops, or any type of multi-unit property. Single family detached and townhouses are acceptable.
8. You’re being your own GC AND you’re using more than three licensed subcontractors.
We know that many homeowners, or homeowners' moms, dads, brothers, etc., will serve as their own GC for their home renovation project.
In order to qualify for a RenoFi Loan, your GC will have to pass RenoFi’s due diligence requirements for contractors. These requirements ensure that your renovation project is set up for success, and that your contractor is fully ready to take on the project.
If you are a GC by trade, with years of applicable project experience and references, you can use as many subcontractors as you’d like.
If you are not a GC by trade, RenoFi will cap you at three subcontractors for two main reasons.
First, RenoFi cannot evaluate your experience in managing subcontractor relationships if you don’t have significant GC experience. Second, RenoFi completes a detailed analysis of every GC a homeowner uses, and if you are not a GC by trade, RenoFi will have to instead complete that detailed analysis on each of your subcontractors, which requires a significantly larger financial investment on our side. This is why we limit our “part-time” GCs to three subcontractors or fewer.
If you’re unsure if your personal situation falls into this category, schedule a call with one of our RenoFi advisors.
9. Your main source of income is unpredictable.
If you work for yourself, have a fluctuating schedule, or by commission, then you’re going to have a slightly harder time getting approved by a lender. This isn’t specific to just RenoFi Loans, it’s the same requirements for any type of mortgage.
If you fall into this category, you should be prepared to provide additional documentation and information to the bank while applying, so the loan officer will feel more comfortable lending to you.
Our team can help you prepare for this — for starters, you’ll typically need two years of tax returns showing income at the same levels at which you hope to qualify.
10. You’ve already started construction; your home home is not livable.
If you’ve already started construction, this doesn’t automatically disqualify you for a RenoFi Loan. However, if you’re quite far into the construction process and your home is…demolished, lenders are less likely to approve your application.
For these situations we recommend scheduling a call to chat with a RenoFi advisor to get pre-qualification from the lender as soon as possible.
How do I know if a RenoFi Loan is right for my project?
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Those are the most common reasons that homeowners can’t qualify for a RenoFi Loan to finance their renovation.
But there are still some honorable mentions that didn’t quite make the top 10. Check out the reasons below to see if they might apply to your renovation project.
- You’re renovating a mobile home, are building on a temporary foundation or have a manufactured home.
For most lenders offering RenoFi Loans, these are not permissible.
- Your renovation is a minor project (less than $25,000)
You won’t qualify for a RenoFi Loan with our lenders if you are looking to borrow $25,000 or less. RenoFi Loans allow homeowners to borrow anywhere from $25,000 to $500,000.
If you are looking to finance a smaller renovation project that’s less than $25,000, a traditional home equity loan or personal loan are likely your best bet.
- Recent bankruptcy
If you filed for bankruptcy it could cause your application to be declined from a lender depending on how recent the bankruptcy was discharged.
- Your home was listed for sale in the last six months
RenoFi’s lending partners follow government guidelines - so any home listed for sale within the last six months cannot be eligible for a RenoFi Loan. Therefore, if you were considering selling your home and had it on the market, or still do, it will need to be off the market for at least six months before you can qualify for a RenoFi Loan. (This does not apply to homeowners who have just purchased their home and are looking to remodel).
- You missed a mortgage payment within the last two years
If you missed a mortgage payment in the last two years, it will be significantly harder to get approved for a RenoFi Loan. Some lenders have stricter guidelines, which can vary on the severity of the missed payment. Talk to a RenoFi advisor to find out more.
Congrats! You made it to the bottom of the list! If none of these apply to you, you’re well on your way to qualifying for a RenoFi Loan.
To find out everything you need to apply for a RenoFi Loan, take a look at our helpful checklist to start the application process.