If you’ve been considering completing various remodeling projects in your home, perhaps the one hesitation you have is I have no idea how I’m going to pay for this all at once. It’s hard to decide what sort of renovation you can realistically complete when you don’t have a liquid amount of money matching your project estimate. There are various financing options which you may not be aware of. If you are in the process of getting estimates for a job, ideally you know how much you can afford to finance and possibly even have financing in place.
How Will You Pay?
Perhaps this is the most important question for determining your remodeling budget. Unless you have a significant savings and plan to pay cash, you may need to find a way to finance your project. First you need to evaluate what sort of credit score you have, and whether you can qualify for financing. Then review your monthly household budget, including all current debts, to calculate how much you can afford to pay for one of the following financing options.
203K FHA Rehab Loan for Home Purchasers
- An option for new homeowners that is gaining popularity is the FHA 203k rehab loan. The 203k loan allows you to finance up to $35,000 into the purchase of a new home for remodeling purposes. One drawback of this loan is higher a monthly mortgage payment and additional paperwork for FHA loans compared to a standard mortgage. One advantage of a 203k loan is getting an immediate increase in your new home’s equity. Quite possibly you could wind up owning a home that is far nicer than what you could have purchased for the same price on the market.
Cash Out Refinancing
- For homeowners who are already established in their homes but would love a decrease in interest rate (if that is available) a cash out refinance is a wonderful option. There are closing costs and hefty fees that may be applicable, so it is not the least expensive option available. Also, if the current interest rate is higher than your mortgage’s original interest rate, this would not be a practical route to take.
Home Equity Loan and Home Equity Line of Credit (HELOC)
- A home equity loan essentially borrows against equity you have in your home, generally with a fixed monthly payment and interest rate. You receive one lump sum payment, making this the perfect financing option for someone who knows exactly how much their project will cost. Home equity loans often have a higher interest rate than your regular mortgage or a home equity line of credit (HELOC). Once more you would pay closing costs and expenses such as an appraisal and attorney’s fees.
- Some common aspects of a HELOC, compared to a home equity loan, are that it borrows against your home’s equity and carries associated closing costs. Otherwise the HELOC is fairly unique, working similarly to a credit card. A certain amount of money is available to draw from for a specific length of time. There is a period when everything you’re paying is interest, with a variable rate (but generally lower than a home equity loan or mortgage). Once more, you pay for closing costs.
Borrow Responsibly
All of the above options use your home as collateral, so it is crucial not to bite off more than you can chew. If you have a pricey project in mind for your home, consider saving a portion of the funds first, at least enough to cover closing costs and fees. You can even spend several months setting aside the amount you would be paying for one of these financing options to see if it really does fit your budget. There is one benefit to these types of financing options that make them more attractive than a credit card and that is that the interest you pay is tax deductible.
Contact C.O.D. Home Services LLC today, we would love to talk to you about lending options available.