Maybe you want to add more space, increase its value, or just make it more comfortable with more natural light or more modern appliances.
Unfortunately, such renovations aren’t cheap. Even small changes, like updating cabinets or adding new lighting fixtures, will set you back at least a few hundred dollars.
Fortunately, there are many affordable ways to fund your home renovation project so that you don’t have to settle for an old or shabby house forever. Whether you’re looking for grants or loans to renovate your home— read on to learn about all your options – mortgage and loan options for home renovation projects.
Choose The Right Loan Options for Your Home Improvement Projects
The problem is that home renovations are often expensive. However, with the right planning and budgeting, it is possible to renovate your home without breaking the bank. These simple tips will help you get started with a plan in mind and save money in the process. So keep reading to find out what loan options will be the right fit for your home improvement projects without getting broke.
#1 FHA 203(K) Loan
Federal Housing Administration or FHA 203(K) Loans are funded by the government for both, buying an upper-fixer house and home improvement projects, without having you apply for two separate loans.
This financing option for home improvements is a good choice for those buyers who are looking for a low down payment or have a less Credit Score. Available in two options- (a) Limited FHA 203 (k) loans to cover minor repairs and upgrades of up to $35,000 and (b) Standard FHA 203 (K) loans to cover major structural repairs exceeding $35,000.
#2 Home Equity Loan (HEL)
Here’s your chance to retrieve the money against the equity you’ve built in your home over time. This loan option is sometimes referred to as a second mortgage and uses your home as collateral for a new loan, which is often used for tuition fees, new business start-ups, and home improvements as well. So, if you have a sizable amount of home equity built up and need funds for bigger and one-time renovation projects Home Equity Loan could be the right choice for you. Although, these kinds of loans come with a higher interest rate and with a monthly amount to pay. So, consult your legal authority before taking this further.
#3 Home Equity Line of Credit (HELOC)
A home equity line of credit or HELOC allows homeowners to borrow money against the home equity they have built up in their property holdings. The HELOC loan process is similar to a home equity loan but works more like a credit card. You can borrow money as per your need up to a pre approved limit, pay it back in monthly payments or in a single go, then borrow again when needed. However, when you enter a repayment phase, typically after 10 years, you will no longer be able to take out a mortgage for renovation projects. But, you will pay interest-only payments, and the principal as the loan converts to an amortized loan.
#4 Cash-out Refinance
Cash-out Mortgage Refinance is another great option for homeowners who are looking for ways to refinance a new loan for home improvements at a lower interest rate with a bigger amount than they currently owe. That way you can pay off your existing loans, debts, or any kind of fund and use the remaining cash as you want.
Available in four options, (a) Conventional cash-out refinance loans good for homeowners with good credit scores to cover costly renovations; (b) FHA Cash-out Refinance loans for homeowners with less credit score and higher debt ratio; (c) FHA Title 1 Loans for least credit score and little to no home equity borrowers; and (d) VA Cash-out Refinance Loan for the government service member and veterans and their unmarried living spouses.
#5 Personal Loan
Don’t have much home equity? Don’t worry. A Personal Loan is another good financing option for home repairs and improvements that won’t use your home or car as collateral. With much speed and ease, these kinds of loans can be processed and approved with lesser paperwork compared to what other loan options require. Personal Loans have fixed or adjustable rates, however, they come with higher interest rates than HELOC or home equity loans. But, if you have a good credit score (650 above), a personal loan could be the right choice for you.
Are you Ready for Getting a Loan For Your Home Renovations?
Well, unless you have the cash on hand and a big chunk of money saved, an investment like that can be a risky proposition. However, there are several ways to pay for your home renovation project without putting yourself into debt. Keep in mind these points before taking out a mortgage for home repairs and purchasing a new house.
#1 Decide on your home renovation goals
If your roof is in disrepair and needs replacing, that’s something you’ll need to pay for sooner or later.
On the other hand, if you want to add a fireplace and it’s not something you use, it’s not a wise investment. Your goals can help you prioritize the renovations that make sense to do first. This will help you save money for the ones that matter most to you.
#2 Repair first, then renovate
It’s sometimes possible to skip the renovation step altogether by just repairing the thing that needs work.
While repairs are generally less expensive than renovations, they may be easier to finance since they’re considered to be more temporary. That could make it easier to get the money you need to complete the project.
#3 Estimate the costs with a pro architect or contractor
This will help you plan your budget more accurately and make sure you have the money you need on hand. If you’re planning a major renovation, you’ll want to hire an architect or contractor to get an estimate of the costs for the project. This professional will be able to give you an idea of the costs of labor, materials, and other factors. You can also ask other homeowners how much similar projects cost in your area.
#4 Choose ways to fund your home renovations correctly
There are several ways you can fund your home renovations. It just depends on which one works best for your requirements and situation. Gather as many insights and information as you can on the above-mentioned loan options for home improvements and repairs before forwarding with the mortgage process.
Home renovations are an excellent way to improve your home and life. That said, these projects can be expensive. Whether you want to add more space or just make your home more comfortable, you’ll need to make sure that you have the funds on hand. Luckily, there are several ways to fund your home renovations without putting yourself into debt. Now that you know how to pay for your home renovations, you can get started with a plan in mind and save money in the process.