Rather than shopping for a new home and up-rooting your current life, you might consider remodeling your current home to create the space you’ve been dreaming of.
One aspect that often confuses homeowners, however, is the financing of remodeling work. How will you pay for a new addition, kitchen makeover or bathroom renovation while staying within your budget? The good news is that there are plenty of affordable financing options available for those who want to remodel their current house.
Here are some options for financing a home remodel to maximize your budget.
First, is it smart to finance a home remodel?If you don’t have enough cash on-hand to contribute to the home remodel you’ve been dreaming of, should you consider a financing solution?
Unfortunately, there is no simple answer to this question. However, there are some guidelines you should follow when considering applying for a remodeling loan. Consider your current financial situation – do you have the job security or cash flow to afford monthly payments with added interest? If you can afford financing payments, a remodeling project can be a smart investment that will improve your lifestyle.
Additionally, what are your future work, family and financial goals? Whether your job is relocated, you’re planning on expanding your family or want to sell your home in the near future; these are all considerations to take into account when applying for a remodeling loan.
Types of Home Remodeling Loans
Before you decide on the right type of financing for your upcoming remodeling project, we first advise you to speak with as many lenders as possible so you have a wider selection of options. There’s no “one-size-fits-all” approach when it comes to remodeling loans. It’s also important to note that you don’t have to stick with the same lender that oversees your home mortgage, either.
With that being said, let’s explore some of the popular types of home remodeling loans.
Home Equity Loan
This is perhaps the most popular home remodeling financing option, especially for more costly projects. Also known as a “second mortgage”, a home equity loan normally includes a fixed-rate, fixed-term loan amount that’s based on the amount of equity you’ve built up in your current home. When you agree to a home equity loan, you’re expected to pay back a specified amount of money each month, just as you do for your primary mortgage.
Home Equity Line of Credit
To be eligible for a home equity line of credit, you typically need at least 20 percent equity in your primary mortgage. This revolving-style line of credit, much like a regular credit card, allows you to borrow as much money as you need, up to the credit limit. Payments are made only on the amount you legitimately borrow. For instance, if you’re authorized for a $50,000 line of credit to conduct a home remodeling project, and you only end up spending $20,000, you only make payments on the $20,000 plus interest. Always ask about the available interest rates and their timeline. Sometimes, companies may raise rates during the repayment period.
A cash-out refinancing loan is a good option for those homeowners who’d like to simply tack on the extra amount to their current mortgage. To be eligible for this home remodel loan, you will most likely need at least 15 percent equity in your property. The lender will simply subtract the equity from your mortgage and add the loan to the current amount due.
For example, let’s say you own a $500,000 home and have $200,000 worth of equity in it. You want to remodel the upstairs attic into a guest suite that costs $70,000. With a cash-out refinance, your lender modifies your existing mortgage to $370,000 as the amount due.
Do you have more questions about home remodeling loans? Contact Treasured Spaces today!
We’re Minnesota’s leading home remodeling contractor, and will help optimize your budget so you can find a loan that you’re comfortable with.
Get in touch with our expert team of remodelers to find out how we can help build the space of your dreams!