One of the most important considerations for your home
remodeling project is financing. After all, you can’t get far with your
remodeling project if you can’t afford it. With proper planning combined with
the perfect financing option, you will be able to make your vision for your
home a reality– all at an affordable price. Despite popular belief, there are
still plenty of opportunities to help you finance an addition, new home build
or remodeling project. The following are some of the different financing options you
can choose from or discuss with your banker.
Cash: If you have the available cash in your
savings, that may be the best way to finance your home improvement projects.
There’s no interest, no fees and you are not dependent on anyone when you use
cash. It’s important to understand, however, that by paying in cash, it
depletes any reserves you may have. In other words, you need to compare the
interest you could earn by investing your cash versus what you could gain from
using it to finance your project.
Home Improvement Loan: There are two special
loans administered through the Federal Housing Administration (FHA)- the Title
I and Section 203(k) programs.
- The Title I loan lets you to borrow up to
$25,000 for improvements to a single-family home. The FHA insures again the
risk of default and these loans are fixed-rate. Approved Title I lenders are
the only ones allowed to make these types of loans.
- The 203(k) program is not commonly used, but is
perfect for financing a home that requires a lot of renovations. It comes in
the form of a single, long-term, fixed or adjustable rate loan that insures
both the attainment and restoration of the home.
Home Equity Loan: With this type of loan, you
choose a fixed amount that you want to borrow, close on the loan, and receive a
check for the amount you have chosen. You have regular monthly principal and
interest payments that are structured over a period of years. Upon completion
of those payments, your home equity loan will be paid in full.
Home Equity Line of Credit: Different from a
home equity loan, a home equity line of credit is a form of revolving credit in
which your home serves as collateral. It’s similar to a credit card, but the
interest you pay is tax-deductible. The credit line is usually set at 75 to 80
percent of the assessed value of your home minus the balance of the first
mortgage. You will close on this type of loan only one time, but if you decide
after a few months that you need to withdraw additional money, you will be able
to do so up to the value of the loan.
Refinancing: Refinancing your mortgage is a wise
move if interest rates are significantly less then when you first purchased
your home. One refinance option is called “cashing out” which means
that you can take a small increase on your mortgage amount and get it out as cash.
This type of refinancing option allows you to use the accrued equity in your
home to take out a new loan to pay off your existing mortgage and then use the residual
funds for your remodeling project.
Contact us today to discuss the remodeling with financing process or get a risk free consultation from our remodeling experts.