6 Options to Pay for a Home Renovation
July 12th, 2018
July 12th, 2018
Did you buy your dream home 10, 15, 20, or more years ago? Unfortunately, after many years, home buyers often discover their dream home isn’t that dreamy any more. And, they find themselves contemplating a home renovation project.
Homeowners may decide to renovate for a variety of reasons. Their family has grown, and they’ve run out of space. Their kitchen and/or bathroom look dated. Or, an elderly family member may need to move in, which requires accessibility and safety modifications.
If you’re thinking about making improvements to your home, you may wonder how you’re going to pay for your home renovation costs. Below are some different options to help you fund your home improvements.
If you don’t want to finance your home improvements, you can always pay cash. You could buckle down on your expenses and start saving money. You could use a tax refund check or a bonus from work. Or, you could ask a family member for a loan.
You could pay for your home renovation with your credit card, but that can come with huge ramifications. You could run out of cash and/or credit halfway through your renovations, which would make it impossible to get a consolidation loan to finish up the work. Additionally, if you can’t pay for your entire renovation costs, the unpaid balance on your credit card will rack up heavy interest. Also, if you use more than a third of your available credit, your credit scores could take a hit, too.
Getting a home equity loan or HELOC can make sense since any home improvements can increase your home’s value and earn more equity. A home equity loan is a fixed loan with a set payment schedule. A HELOC is a revolving line of credit with a variable interest rate and repayment schedule.
To get a home equity loan or HELOC, you typically need at least 20% equity in your home. Your home equity is the portion of your home that you truly own. To find that number, you take your home’s total market value and subtract the outstanding balance on your mortgage and other liens.
If your combined loan-to-value (CLTV) is too high, you can either pay down your current mortgage or wait until the value of your home increases. The money for your loan or HELOC is borrowed against your home, so your home will be used as collateral for the loan.
A Fannie Mae HomeStyle Renovation loan enables you to refinance your current mortgage and include the costs of your home improvements, so you don’t have to take out a second mortgage, HELOC, or other more costly financing methods. Therefore, you’ll only have one home loan, interest rate, and monthly payment.
You can refinance your home with a HomeStyle Renovation loan for up to 75% of your property’s as-completed value. In other words, that’s the appraised value of your home once you’ve completed the renovations.
With a HomeStyle Renovation, you can finance any “value-added” renovations to your home, including structural modifications, energy-efficiency updates, plumbing and electrical system changes, and landscaping.
If you have an older home that needs significant repairs, an FHA 203k Rehabilitation loan may be a finance option for you.
Two different types of FHA 203k mortgage loans are available. The regular 203k loan covers the costs for structural repairs, remodeling, a new garage, or landscaping. The streamline 203k loan is for minor repairs such as energy efficiency improvements, a new roof, new appliances, or non-structural repairs like painting.
With an FHA 203k loan, you are required to provide a detailed proposal of the work you want to do and the cost estimates for each item. Additionally, you’ll have to pay mortgage insurance for the life of the loan.
Are you age 62 or older? Do you own and live in your home? Do you live on a fixed income? If your roof starts leaking, your HVAC system goes out, or you need structural home repairs, how are you going to get the money to make these renovations? A reverse mortgage loan may be your answer.
With a reverse mortgage loan, you can tap into the equity in your home to make the renovations you need. Plus, you don’t have to make any monthly mortgage payments to repay your loan. However, your loan must be repaid if your home is sold or the last remaining borrower on the home title dies.
Wondering where you can go to get help with your home renovation financing needs? Grandview Lending is an Indianapolis-area mortgage broker company that helps individuals obtain the home loans and funds they need to make home improvements. We have experience with HomeStyle Renovation loans, FHA 203k Rehabilitation loans, Reverse Mortgage loans, USDA Rural Housing loans, and many other types of loans. Our home loan experts can help you assess your options and walk you through all the pros and cons of each, so you make the right decision based on your needs.
Contact us today at 317-255-0062 for more information. Get started on finding the funds for your home renovation now!
Note: These materials are not from HUD or FHA and were not approved by HUD or a government agency.
Photo credit: 123RF / Keith Bell
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