Lending and services platform Finance of America Inc. announced today the launch of Finance of America Home Improvement, a new business division offering non-mortgage financing options, including renovation loans.
Finance of America’s new division offers the “Benji” portal, which gives contractors tools to expand their business. Homeowners can also use it to access financing solutions through their contractor.
The Benji portal is also available to contractors to manage their projects and deal pipeline, access financing calculators, and get their clients approved for financing, said Shawn Stone, Finance of America Home Improvement president.
“The high demand for housing combined with persistently low inventory has created an environment where home renovations are more prevalent and homeowners are searching for new ways to pay for these projects,” Stone said. “This product provides an entry point for contractors to introduce homeowners to lending solutions for their projects. Meanwhile, we make it easier to secure quick financing approvals so the contractor or vendor gets the customer approved, the deal closed, and they can move on to the next project.”
Per a study from Harvard University’s Joint Center for Housing Studies, renovation financing is expected to increase 3.3% in 2021 to $433 billion.
Homeowners in 2020 turned to renovation loans roughly as much as they did in 2019, originating $51.7 billion in renovation loans — compared to $51.6 billion in 2019. Those figures do not count the homeowners who refinanced in order to fund renovations, or the ones who put the new home office addition on a credit card.
Two primary programs are used to finance a home renovation: the 203K, which is administered by the FHA and covers the cost of the home plus the cost of the repair, and requires between 10% and 20% of the total loan amount be set aside as a contingency. The 203K also requires a HUD inspector and consultant and can’t be used for “luxury” items such as pools.
The other program, the Fannie Mae Homestyle program, for conventional borrowers, requires that repairs be completed within 12 months and requires a contingency be set aside for cost overruns. However, it doesn’t require a HUD inspector or consultant — it similarly requires the borrower to pay closing costs and origination fees.
Both programs offer financing based on the “as completed,” or future value of the property, based on an appraisal which takes into consideration the planned additions. The Homestyle program can be used for investment properties, though the 203K loan is only for primary residences.