Help with Financing a Renovation Only

8 Replies

Biggerpockets Family,

Good afternoon and I hope you are all doing well. For the last 5 years I've followed a pretty standard method for buying my rental properties and performing the renovation. It always looked like this:

Step 1: Buy the property under a conventional mortgage with 20% or 25% down (depending on type of property)

Step 2: Apply and use a FHA Title 1 Home Improvement Loan to renovate the property. This has always been a great loan that doesn't require any equity in the property and is low cost because it is factored over 20 years.

Step 3: Refinance the property and pay off Title 1 Loan.

Step 4: Rinse and Repeat

Unfortunately when I tried after my last acquisition I was told my DTI was too high. This is because the underwriter won't consider my rental income on properties I've owned for less than two years, even though I have leases in place!

Well this puts me in a difficult position and I need about $65K for the renovation. I was hoping that the BP community could help me on some ideas or companies you've used in the past to fund just the renovation piece.

So far I've looked at Lightstream however they seem to be a higher interest rate and max loan term is 84 months. I've also called a few places about a personal line of credit, but again higher interest rate since there is no collateral. 

What have you used to fund your renovations? Please exclude any loans that would require me to refinance the property under a hard money loan or a 203K loan. 

Thanks for the help!

You should consider a Fannie Mae Homestyle Renovation loan. They will go to 75% loan to cost on a refinance or 85% LTV on a purchase, at close to standard Fannie Rates. Up to a 9 month renovation period.

It uses standard Fannie Mae guidelines on rental income. So as long as you have even just a lease agreement in place, they will use the lease X 75% Minus PITI. If the number is positive, then it adds to your income, if the number is negative, then it adds to your debts.

@Kevin R. - Thanks for the input. Unfortunately doing this loan will require me to refinance a property I just purchased last week. 

Additionally the only way I can qualify for this loan on a multi-family is if the property is my primary residence, which it is not. 

Ah, I wasn't aware that it was a multi-family. 

Could you refinance one of your other properties? How about credit cards with 0% intro for 12+ mo? Then refi out after the renovations are done.

@Steven Wade

You're not going to like the answer, but going with a no income verification loan for your multi unit property is your solution. Unfortunately, you're not going to enjoy the low interest rates, but you will not have to pay MI or PMI so the rate increase will be mitigated somewhat. Rates aren't heinous; in the 5's with a buydown and 6's at par.

Find a good broker that can run the numbers for you.

Best of luck,


@Daniel Helland I'm not looking to refinance any of my other properties at this time. I could do a 0% intro card, however the renovation cost is around $65K so that is not a great option.

@Stephanie P. I think there are much better options out there. As mentioned previously I'm not looking to refinance this property as I just closed last week. That would cost thousands more dollars which is not needed. 

Right now I am looking at other options such as local banks, credit unions, and personal loans.

Depending on your credit score, $65K is very doable over a few cards.
And if you get (certain) business cards, it won't even show up on your personal credit!

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