So, you like the location of your home, you don’t want to move but you would really like to update the exterior or the interior!
Don’t worry, there’s a loan for that! Actually, there are many.
Avoid feeling stuck or unhappy in your house if you don’t have the money on hand to pour into renovations.
Instead, take a look at these various options that give borrowers an opportunity to update their home, increase the value of their home and be happier in it!
Home Equity Loan (HEL)
Have you lived in your home for awhile? Enough time to build up substantial equity? This would be the loan for you if you’re looking for funds for a big one-time project.
With a HEL, you are borrowing against the equity you’ve built up over time.
Are you wondering how to calculate your equity? Assess your home’s value and subtract the outstanding balance due on your existing mortgage loan.
With a low and fixed interest rate, this loan is perfect for a large sum of money and it’s also eligible to be tax deductible.
A downside to the Home Equity Loan is that it adds a second monthly mortgage payment if you still owe money on the original mortgage.
Home Equity Line of Credit (HELOC)
The Home Equity Line of Credit is just like an HEL but works more as a credit card.
You’re able to borrow an approved amount, pay it off and then borrow from it again.
One of the differences between a HELOC and a HEL is that the HELOC has adjustable interest rates over the course of the loan while HEL has a fixed interest rate.
We know we said this is like a credit card, but it differs from your average credit card. You only pay interest on the amount you borrowed from the line of credit vs paying interest on the entire line of credit.
This loan is very flexible and a good option for lower cost projects that will happen over a long period of time. You use the money when you need it, and you can have the line of credit for up to 10 years.
What in the world is a cash-out refinance? Glad you asked.
This is how it works. You refinance to a new mortgage loan with a bigger balance than what you currently owe. Then you pay off your existing mortgage and keep the remaining cash.
The cash you received is from your home equity, and is what you would use for your home improvements.
The best time for this loan is when you’re able to refinance to a lower interest rate than your current one. There’s also a chance you’ll be able to adjust the term of the loan so you would be able to pay off the loan sooner.
Cons: Cash-out refinance loans have higher closing costs and will apply to the entire amount of the loan instead of just the cash.
FHA 203(k) Rehab Loan
The FHA 203(k) Rehab Loan Combines two loans into one. This means that you bundle your mortgage and home improvement costs into one without doubling a mortgage or closing costs.
These are common when you are purchasing a fixer upper and it is evident that there will be renovations in your near future.
These are government backed and accept low down payments as well as lower credit scores, nor do you need to be a first time home buyer.
- Renovation expenses need to be over $5,000
- Only older and fixer-upper homes
- Not all home improvement projects are approved for this loan
The USDA loan is also commonly used for fixing up older homes or damaged homes. You can read more about our blog focused on the USDA loan here!
Have questions about any of these loans? We’d love to help answer them.