How do I know if a RenoFi loan is right for my project?
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Just like no two general contractors are exactly the same, and neither are their contracts or proposals. And at RenoFi, we’ve seen them all. But in order for us to help put you on the best path to a home you love, there are a few submission requirements necessary in every contract and every proposal/detailed estimate from your contractor that you should know.
1. The Contract
While collecting pay stubs and bank statements is pretty straightforward, this important part of your RenoFi Loan checklist may be a little less familiar. So to make sure your contract has everything you need right from the get-go, ask your GC to include the following:
- Contact Information: The contractor company name, phone number, website, and email, but also the direct contact info of whoever is managing the renovation. It should always be clear who to call with any questions you have throughout the process.
- Change Order Procedures: Find out exactly what your general contractor constitutes as a change order, and what happens if something out of scope is required during the renovation.
- Clear Construction Timelines: Not only the projected completion date, but what can be expected daily. What days of the week will the contractor or subcontractors be working? What time will construction start and stop each day?
- Payment by Progress Breakdown: Request a clear and fair payment breakdown based on the project’s progress. The complexity and size of your renovation can impact this structure, but RenoFi recommends: 1) No more than 15% upfront, 2) Ideally, no one payment is more than 20% of the overall budget to ensure there is enough granularity in the payment schedule, and 3) Try to hold back at least 10% for the punch list at the end.
- Guarantee or Warranty: Your contractor should have a warranty on their work. And it should tell you how long you are covered for, what the contractor agrees to fix if something breaks, and in what timeframe the contractor will return to take care of it.
2. The Detailed Budget/Project Proposal
The larger the size and scope of your proposed renovation, the higher the level of detail and professionalism the budget/project proposal should include. But here are the standard requirements for most renovation contracts/budget estimates:
- Itemized breakdown of all materials: Provided in an organized and legible format. Examples may include:
- Square footage of the space to be renovated
- Square footage of each flooring to be installed
- Linear square footage of roofing to be repaired/replaced
- Level/Grade of countertops to be installed
- Brand and specs of the new HVAC unit to be installed
- Itemized breakdown of labor: This can be grouped with the breakdown of materials, but should be as detailed as possible. What will you need to supply versus what your contractor will provide. Will seeding and grading be included if the landscaping is damaged by certain renovations? Who is obtaining the required permits? Etc.
- Architect/Engineer Plans (if applicable): Specifically for more complex renovations, involving multiple rooms or structural/foundation changes; or for any project where the local building code requires engineering/architectural plans be provided. However, RenoFi reserves the right to require plans and specs for review on a case-by-case basis.
- Drawings: Drawings of the renovation with dimensions from your contractor will help RenoFi's team determine whether the scope of work, as well as the itemized breakdown of materials and labor, is commensurate with the plan.
What Else Do You Need to Apply for a Home Equity Loan?
So to recap, here’s what you need from your contractor:
- Your Contractor’s Information (you already got this!)
- Preliminary or Signed Renovation Contract between you and your contractor (with the Detailed Cost Estimate)
- Renovation Plans to be used by your contractor for the project
Everything listed above is required specifically for your RenoFi Renovation Home Equity Loan application. But in addition to these items, all home equity loans will require the following:
- 2 Most Recent Pay Stubs
- 2 Years of W-2 Forms (if you’re self-employed, click here for additional requirements)
- Proof of Homeowners Insurance
- Most Recent Mortgage Statement
- Account statements for all personal bank accounts, retirement accounts, and investment accounts for the prior 2 months
For a full, interactive checklist that breaks down each of these items in more detail, check out our Home Equity Loan Checklist, and as always, feel free to reach out to RenoFi with any additional questions you may have.
Finding the Right Lender
Once you’ve gotten pre-qualified and applied for your renovation home equity loan, we will help match you with a lender. While RenoFi is not a lender, we make finding one super easy because we know the countless hours you could spend searching for lenders, gathering quotes, and comparing rates. So our unique partnerships with the best local credit unions make it possible for us to help you find the best lender for your situation, saving you valuable time now and money for years to come.
So How will the Lenders Set My Rates?
Information from your contractor… check. Additional application documents… check. Getting paired with the right lender…check. We’re walking you through every step of the process, so you can make the best decisions possible for your project. And now, you want to know how exactly your lender will set the rates for your RenoFi loan using all this information you’ve provided. Well, there are four main factors your lender will look at to determine your home equity loan rate.
1. Your FICO Score
This is just another name for your credit score. And there are lots of sites where you can check your FICO score for free. Home renovation loans require a minimum FICO score of 680. And the higher your score, the lower your interest rate will be — just like your mortgage.
Here’s what that looks like:
- Average - 680 - 720
- Good - 720 - 760
- Very Good - 760 - 800
- Awesome - 800+
So if you fall into the “Average” bracket, you can expect a higher monthly rate than if you were in the “Good” bracket. (Check out a few quick ways you can raise your credit score.)
2. Your Combined Loan to Value Ratio (CLTV)
Since a RenoFi loan allows you to lend up to 90% of the post-renovation value of your home vs. the current value like most construction loans, you can borrow A LOT more. CLTV is calculated by taking the value of the RenoFi loan plus your current outstanding mortgage balance and dividing it by your post-renovation home value. CLTV really just means how much equity you will have post-renovation. The more equity, the lower the rate.
3. Your Actual Loan Amount
Some lenders will use certain thresholds to determine if you will be charged a slightly have a slightly higher rate. This typically applies only to major renovation projects — usually over $250K. But if you’re not sure to borrow $90K versus $80K, rest assured, it won’t affect your rate.
4. Where You Live
RenoFi partners with lenders all over the United States, each of which will have their own individual interest rate structures depending on their specific market. The good news is these differences are slight.
What’s even better is that no matter who the lender is or where they’re located, Home Equity Loans overall offer the lowest rates a homeowner will find, not including a first mortgage. So yes, much better than personal loans and a million times better than credit cards.
One more thing to consider is any personal preferences you may have. You may know you want the security of a fixed rate or that you’d prefer lower initial payments with an adjustable-rate loan. Maybe a lower interest rate is more important to you than a lower monthly payment, or vice versa. These choices will obviously play a role in your monthly costs as well.
RenoFi is here to answer any questions you have throughout the entire process. From gathering the necessary information from your contractor and getting paired with the right lender to applying for a renovation home equity loan, you can contact us to help make the next step toward your new home as simple as possible.