Can You Get a Renovation loan in AZ with a Mortgage

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If you’re trying to get a home with your mortgage, chances are you’ll run into challenges getting financing. However, there are a couple different ways to fund your project depending on the situation.

Banks look at lots of different factors when you go to get a mortgage. They’ll dissect your personal eligibility and look at things like your credit score, employment, and income. They’ll also look at the value of the property. Generally speaking, the most they’ll loan is 80% of the value of the property. They expect you to front the other 20%. This in mind, if the value of the property is $100,000, the biggest loan you are likely to get for it is $80,000.

The logic behind this is fairly obvious. If they give you $150,000 for that same property and you can’t compete the work, they’re stuck with a property that’s worth less than what they’re lent out and they don’t want the property. They’ll have to sell it for less than what they’ve paid for it.

This in mind, if you’re working with traditional bank loans, you’ll have to pay well under the property’s actual value to have enough to cover renovations too. This presents a catch-22. More often than not, properties that sell for significantly less have serious issues and the banks won’t finance them anyway. So, it’s generally very difficult to get a with a mortgage in one package when you go to a bank. However, there are ways to tackle both, but your next steps will vary depending on whether you intend to live in the home or not.

You May Be Successful with Government-Backed Financing if You Plan to Live in the House

The big distinction is whether you’re looking for an owner-occupied lending (you intend to live in the house) or a non-owner-occupied option (you’re going to flip it or rent it out). There are a few different types of government-backed options for those who intend to make the property their primary residence. Although the government does not actually lend the money out (the banks are still the lenders), programs offered by the government insure the loans, so the banks risk less and are more likely to lend. It’s the government’s way of helping more people get into homes. The two primary choices here are the FHA 203(k), which works for people with bad credit but has strict renovations about the types of renovations you can do, and the Fannie Mae HomeStyle mortgage which gives you more flexibility in renovations but requires better credit.

Alternative lenders can lend a helping hand if you won’t live on the property.

If you’re planning to flip the house or convert it into a rental, you probably won’t qualify for a from the bank or through a government program. Instead, you’ll want to check out alternative lending; more specifically, hard money loans. These are not contingent on good credit, but require a solid plan and often experience in the industry. They’re short-term options in which you’ll typically make interest-only payments, then pay off the loan in its entirety when you sell the property or refinance later—capitalizing on the fact that you’ve increased the value enough to qualify for a traditional option. Although you can sometimes pick up cash from a hard money lender as a traditional homeowner as well, their offerings are typically geared toward investor purchases, so they’re a better fit for house flippers and those who want to do long-term or vacation rentals.

Dennis Dahlberg

Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
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Dennis Dahlberg Broker/RI/CEO

NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
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About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

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