Tips for Financing Your Renovation Project
No matter what part of the house you want to renovate and no matter how big or small the project is, any renovation project is always going to be either costly or time-consuming, or both. However, if you still want to press on with renovating your house, there are a lot of things you can do to make your life easier. Fortunately, we can say the same thing about the financial aspect of home renovation.
No matter how big the project is, there will always be a loan for you. Until recently, loans for renovation projects would always mean that you have to go to the bank to see a loan officer, submit requirements, and hope that they will approve your loan application. Nowadays, you have the option to do it online.
And not only that, there are a lot more loan options for you when you talk to a mortgage broker or a lender. There are more than 200 loan products for you to choose from and some lenders even let you take out a loan even if your credit score is less than stellar.
But How Much Can I Borrow for my Project?
Whether you want to take this renovation head-on, or are going to hire a contractor, you will have to have an estimate to take out a loan for your project. Lenders or banks would insist you get an estimate so they can tailor a loan for your renovations.
If you want an accurate estimate, you can go for a firm bid, in which case they will break down the labor and materials for you. To make sure, you can add an extra 10% for unplanned expenses.
Once you know the labor and material cost, it’s time for you to go to a lender of your choosing and shop for loans. However, despite the promotional stuff that your lender offers, the main factors that affect your borrowing limit are your credit score, loan-to-value ratio, and income.
Of course, the best rates apply only to homeowners with a good credit report with no late payments in the last year and no maxed-out cards. A few late payments won’t knock you out of most loan products, but that will surely increase your interest rate and decrease your borrowing limit. That said, what types of loan products can you take out? Here are some of them.
Home Equity Loan
Taking out a home equity loan is one of the most common ways for people to finance a renovation project. It works by borrowing against the value of your home without the added value of your renovation project, of course. Naturally, if you’re still paying for the house, you won’t be able to borrow the whole value. However, if you don’t have mortgage insurance, you can borrow up to 80% if you already own the house.
However, one of the problems is that your renovation project might be a lot more expensive than the available equity you have for your house. And in the worst-case scenario, you might even lose your house.
Line of Credit
Line-of-credit is optimal if your renovation project is up for the long term. Upon applying, you will have access to a revolving credit where you can take out a specific amount anytime as long as it’s within the limit.
Not only that, you will only be paying for the funds plus the interest you have taken out, and then you can borrow again from the credit if you still have unused funds without the hassle of reapplying. Ensure that you can pay for the principal amount in due time, or it will damage your credit score heavily.
If the two previous options are a no-go for you, then personal loans are your next best option. Of course, with a personal loan, you don’t have to secure it with your home, which means you don’t risk losing your house if you default since a third party takes responsibility for a loan.
Also, personal loans are flexible and can be used for a plethora of financial needs, including a minor renovation project, which means that the lender won’t ask you that much about your planned renovation. Also, personal loans are much faster to apply for and with better repayment terms, especially if you have a good credit score. Personal loans are capped at 5 to 6 years, so it’s faster in terms of repayment.
A renovation project is a huge undertaking, especially if you’re short on funding. Fortunately, there are several ways for you to finance it, and if you’re lucky enough, you can ask your lender for a custom loan product just for you. All you have to do is to shop wisely for a good loan product. Good luck.
About The Author: Andrina Bell is an experienced web content writer whose interests extend to financial analysis, banking, and finance. When not working, she spends her time reading her favorite classic novels.
Photo by Micheile Henderson on Unsplash
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