How Does a Remodeling Loan Work?

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The way that a remodeling loan works is that the money is held in escrow while bids are made on the work, an initial advance is made to get work started, and the final portion of the funds is made once an inspector approves the remodel. Get the mechanics lien from a remodeling loan released once all the work is done with insight from a financial adviser in this free video on money management and personal loans.

Part of the Video Series: Credit Cards & Personal Loans
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Hi this is Matt McKillen with Innovative Financial Group. The question posed to me was how does a remodeling loan work. Perfect example of a remodeling loan is what's called the FHA 203k loan. What this loan has been designed for is to put up to 35,000 dollars into an escrow account after close to be used to do improvements to someone's primary residence. Now it can be used for remodeling a kitchen, a bathroom, it can be used for a roof. You cannot use it for major repairs like adding an addition on a property. But the way it works is that the money is held in closing, in escrow, there are bids that are put in for the work to be done and there's usually one initial advance to get the work started. Then after a certain period of time, the lender sends an inspector out to make sure that the funds are not being used and work is coming along as scheduled. At that time they're going to agree to a second advance which means they'll release the second portion of the funds. So there is a bit of a fund control involved they want to be sure that the contractor is not abusing the fund and that the work is being completed and it's being done per the plans or codes and then after all the work is completed, that account is zeroed out, the contractor is paid a final installment and the mechanic's lien is released. That's traditionally how a remodeling loan works. Again my name is Matt McKillen and I am with Innovative Financial Group.

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