BORROWERS SHOULD NOT REFINANCE AND REMODEL AT THE SAME TIME

“I applied to refinance my jumbo mortgage and was almost through the process when the loan officer asked if there had been any remodeling done.  I am in the process of replacing a bay window and am just now applying for the required town building permit which can take a couple of months. Will that hold up the refinance?” 

It might. On the face of it, the lender should not be concerned about improvements in the property that increase its value, since that makes the loan a safer investment. But in fact the lender is concerned that in the process of making an “improvement”, the owner may have violated local building codes, which could make the property unsalable in the future. This danger is greatest when the owner does the work himself and doesn’t want to be bothered with (or doesn’t know about) the local building codes.

If a loan officer asks about improvements, it is because he is following the instructions of the underwriter, who wants to make sure that work on the house has been done legally and is in compliance with building codes. The underwriter will want this verified by the local government entity that enforces the  codes.

Since you have improvements in process, don’t be surprised if the loan officer tells you to come back after they have been completed and document that they are in compliance with the codes.

Bottom line: Borrowers should not refinance and remodel at the same time.

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November 2021
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