There's a new mortgage refinance loan in town-the renovation refinance loan. This hot new lending product could be the best way to renovate your new home without breaking your personal piggy bank in the process.

"Location, location, location" is both a blessing and a curse to homeowners. Nothing compares to living in a great neighborhood. Unfortunately, it can be a nightmare if living in a great neighborhood means doing so in an outdated house.

One solution is a mortgage refinance, which can help you cash out some home equity to pay for improvements. But this gets tough if you've already tapped out most of the equity from your home. And it gets downright impossible if you want to make some substantial renovations that would take you beyond the current value of your house.

That's where the new renovation refinance loan enters the picture, much to the delight of homeowners everywhere.

Back to the future

The key to a renovation refinance loan is that the size of the loan is based on the projected future value of your home after the renovations have been completed, not before. If you're purchasing an older place with the hopes of turning it into a dream home, a lender (for a slightly higher rate) is willing to spot you the money to make it happen.

Bank requirements

No bank is going to lend money based on a handshake and a verbal promise. They have specific requirements regarding the renovation refinance mortgage. First, you'll need to present complete plans of your renovation, including architectural drawings. These will show the lender that your improvements change your house's value to the projected figure you have in mind.

Second, the bank will distribute the loan during six checkpoints throughout the process, requiring proof at each stage that the work has been completed.

Higher rate, delayed interest

These loans will have a slightly higher interest rate, due to the extra risk taken on by the lender. However, the first six months of interest are generally folded into the overall loan, so you'll have no mortgage payment until construction is complete.

Location is a key factor in home values, and it generally inspires mortgage refinancing for homeowners who want to stay in a good neighborhood. Now, with the renovation refinance loan, you can have a home that's every bit as desirable as the neighborhood it sits in.