Renovation Loans in North Carolina and South Carolina

The loan amount is based on the home's value after the improvements are done, not just the price you're paying. At closing, the purchase is paid for, and the renovation money is held in an escrow account. Your contractor is paid in draws as work is completed and inspected. You make one mortgage payment on the full amount.

The Limited 203(k) is for non-structural work up to $75,000, such as kitchens and bathrooms, roofing, HVAC, plumbing, electrical, flooring, windows, accessibility updates and paint. A 203(k) consultant isn't required, but you can choose to use one. HUD allows up to nine months to finish the work. Regular FHA rules apply, including FHA loan limits, owner occupancy and mortgage insurance. See FHA loans in NC and SC.

The Standard 203(k) is for larger projects, including structural repairs, additions, major remodels and repairs over the Limited amount. Repairs must be at least $5,000. A HUD-approved 203(k) consultant is required to inspect the home, write the scope of work and approve draws. HUD allows up to 12 months to finish the work, and the loan can include a contingency reserve for unexpected costs.

HomeStyle is a conventional renovation loan for purchases and refinances. It can be used on a one- to four-unit primary home, a one-unit second home or a one-unit investment property. For a purchase, renovation costs can be up to 75% of the lesser of the purchase price plus renovation costs, or the as-completed appraised value. For a refinance, it's 75% of the as-completed value. The lender sets the completion schedule, often around 12 months. A contingency reserve can be added for unexpected costs and is required on two- to four-unit homes. Limited do-it-yourself work may be allowed on one-unit homes with lender approval.

CHOICERenovation is Freddie Mac's conventional renovation loan. For a purchase, renovation costs can be up to 75% of the lesser of the purchase price plus renovation costs, or the as-completed value. It's available for one- to four-unit primary homes, one-unit second homes and one-unit investment properties. It can also pay to repair a home damaged in a disaster or for improvements that help protect a home from future disasters. Work generally must be finished within 450 days, and a contingency reserve is usually required.

A HELOC works well for projects paid in stages, like a shed, garage, ADU, pool or kitchen. You draw what you need as each stage is finished and pay interest only on what you've drawn. Most HELOCs have variable rates, and the payment usually rises when the draw period ends. See HELOC loans.

A home equity loan gives you one lump sum with a fixed rate and payment, while your first mortgage stays in place. A cash-out refinance replaces your mortgage with a larger one, so your rate changes on the whole balance. Both are based on your home's value today, before the improvements. See cash-out refinance explained.

These projects are usually paid for with a HELOC, a home equity loan, a cash-out refinance or a renovation refinance. Before you budget, check zoning, setbacks, HOA rules and permits. In Charlotte, ADUs are allowed on most single-family and duplex lots zoned N1 and N2, with one ADU per lot, and they need both city and Mecklenburg County approvals. See the City of Charlotte ADU page. Outside Charlotte, rules vary by town and county. Income from an ADU may not count toward qualifying until it has a rental history, depending on the program.

Renovation purchase loans require a licensed contractor where state law requires one, a detailed written bid and approval of the scope of work by the lender. Money is released in draws after inspections, so your contractor needs to be comfortable with that payment schedule. Get bids early, since they're needed before the appraisal can be ordered.

For 203(k), HomeStyle and CHOICERenovation, the appraiser values the home as if the work were already done, using your plans and bids. If the value comes in lower than expected, you may need to scale back the project or bring more money to closing. See what happens if an appraisal comes in low.

A renovation purchase usually takes longer to close than a regular purchase because of bids, consultant reports and the as-completed appraisal. Build that time into your offer and talk with me before you write the contract.

Additions and major improvements can raise your property's assessed value and your property taxes. Your homeowners insurance may also need more dwelling coverage after the work. Interest on home equity debt may be tax-deductible when it's used to buy, build or substantially improve the home that secures the loan. Check with your tax professional and see IRS Publication 936.