What Home Improvement Loans Are Available To You?
So, you want to add value to your home with renovations. Whether its due to a leaky roof or the revulsion you feel looking at the bright orange walls and the funky light fixtures, youll most likely need a loan to cover the cost. But what loan is best for your project? It really depends on the project, how much youve invested in the home, and how quickly you can repay back the loan. Here are a few of your home renovation loan options
SEE ALSO: 7 Questions To Ask A Potential Loan Officer
Home Equity Loan Or Line Of Credit
You might not realize it, but the money youve already put in your home has actual cash value. How do you access it, though? By taking out a home equity loan, you are dipping into the money youve already invested in your home
. This money can be used for virtually anything you want. So, making repairs or renovations to your home is a perfectly reasonable way of using your home equity loan. In fact, it might actually make you money, if you invest your money in improvements that will make it sell for more when you are ready to part with your home.
The same concept goes for a Home Equity Line of Credit (HELOC) except that you are not taking out a specific amount, but are instead taking money out as you need it
. But be careful when using this option. Your collateral is your home. No matter how many improvements you make, if you cannot pay the bills, then your home will be taken away from you.
If interest rates are lower than the ones you are currently paying for your mortgage, a cash-out refinance might also be a good option. If you go this route, you will have to take out a bigger loan than the one you currently have, but you get the difference of the two amounts in payment
. This option is great if you are looking for lower monthly payments along with the ability to make useful home renovations. In this loan, too, you can use the money for virtually anything, so home renovations are not out of the question.
If you havent bought your home yet, but are considering a fixer upper, there are still home loans that you can use. With a 203(k) home loan, your renovation costs are rolled into your monthly mortgage payments
. Because this loan is offered by the Federal Housing Administration (FHA), it is affordable for most homeowners, allowing people with even low or moderate incomes to afford much needed renovations on their new homes. A major advantage of this is that the homeowner is getting instant equity in their home and making it a more desirable property from the get go.
If you are a first time home buyer with less than stellar credit, but a desire to own your own home, the 203(k) loan program could make owning a home and affording renovations possible for you.
SEE ALSO: The Ultimate Guide For First Time Homebuyers
Which Is Best?
Depending on how much youve already invested in your home (if anything), your best option may change. Other factors, like the interest rate at the time you want to take out a new loan, also affect your options. No matter what loan option you think you want, make sure to do the math on multiple methods and get multiple estimates from a variety of lenders
. You might be surprised by how much you could save going with another option.