By: Nava Brahe
Homeowners spend about $400 billion a year remodeling their existing houses. That’s a lot of cabbage when you also consider how many new homes are built each year. Either way, renovations are a costly endeavor and not everyone has a rainy-day fund sitting around waiting to be spent on that new kitchen or bathroom, or a new room for a home office. Luckily, we can seek financing for our projects; We just need to know how to go about it the right way.
Here are some important tips for getting the financing you need for your home remodel:
Carefully Consider How Much Money You Need
The first thing to do before taking out a loan is to determine how much equity you currently have in your home. Is your equity figure larger than the amount owed on your mortgage? If the figures are “upside-down”, meaning you owe more towards your mortgage than the equity in your home, the timing will not be optimal for acquiring even more debt. A larger debt load means running the risk of defaulting on your loans if an unfortunate incident should occur.
Will Your Remodeling Project Add Value to Your Home?
Borrowing only what you need to make necessary improvements is the key to successful financing. Make intelligent choices when it comes to the projects you choose to undertake and the materials you use. For example, if you install more energy-efficient appliances as part of a kitchen remodel, your utility bills will decrease. Moreover, an updated kitchen is a sure-fire way to add value to your home. When it comes time to sell, your home will be worth more if you focus on projects that will leave less to do for future owners.
Put Some Money Aside
Residential construction loans often require at least a 20 percent down payment. If you’re already browsing Pinterest and décor websites, think about putting away some money before you start picking out tiles and meeting with contractors. A larger down payment will save money on a loan in the long run, lessening the amount of interest you will have to repay.
Choose The Right Loan for You
Luckily, there are more options than ever before when it comes to financing. Speaking with a qualified financial advisor will help you determine which loan works best for your circumstances. Options include refinancing your mortgage; applying for a home equity loan or line of credit (based on your current equity level); an FHA (203)k Rehab loan, which is sponsored by the federal government and can be obtained with a lower down payment and a less than perfect credit rating. Another popular option for homeowners with high credit ratings is a credit card with a zero percent introductory interest rate. This is usually the best option if your project is of a smaller scale, rather than a full-blown, down-to-the-studs renovation.
Choose a Reputable Contractor
How can you consider a home remodel without the right contractor? An experienced residential contractor can help you budget your resources, giving you an expert opinion on where to spend, and where to save.
Interested in moving forward with a project after taking our advice? Contact us. We’ll ensure you’re set up to succeed.