Remodeling your home is easier said than done – particularly when it comes to financing. Between remodel loans, private home loans, and special mortgages, you might not know where to start.
Luckily, help is available for homeowners who want to proceed with a home remodel project. Below is a brief overview of some financing options:
Banks and credit unions offer mainstream mortgages for home remodeling, renovation, and improvement projects. These mortgage agreements use your home as collateral. Homeowners will pay a deductible on the loan interest, just as they would for any other mortgage. Renovation mortgages, however, come with the added protection of Federal Housing Administration (FHA) insurance.
Fannie Mae and Freddie Mac are corporations that Congress has set up for the same purpose. To qualify for these “second” mortgages, you will need good credit, as well as money for a down payment. The Fannie Mae HomeStyle Renovation loan is one of the most popular for home improvements.
Home Equity Loan
A home equity loan is a type of mortgage that has the same tax breaks as a mainstream mortgage plan, but it doesn’t come with the closing costs. Homeowners can pay for their renovations over the course of 15 to 30 years, typically with a fixed interest rate. The interest rates for a home equity loan, however, tend to be higher than a conventional second mortgage.
Home Equity Line of Credit
A home equity line of credit (HELOC) is another popular option. A HELOC gives a homeowner a spending limit from which he/she can borrow. Then, the lender only charges interest on the amount the homeowner actually borrows. Homeowners can later borrow more, as time passes during a renovation. Some HELOCs have minimum withdrawal amounts while others do not. Interest rates for this type of loan are adjustable. Most HELOC agreements come with 8 to 10-year repayment plans.
For those who are looking to purchase or refinance a home in need of renovations or repairs, 203k insured loans offer a unique solution aimed to save time and money. By allowing projected construction costs to be added to a home loan, buyers are able to secure a loan for a home that might otherwise be rejected, due to its condition, and simplify both the process and the loan itself into a single mortgage, avoiding the higher interest rates and balloon payments that usually accompany improvement loans.
Additionally, those who are refinancing their homes are able to complete necessary rehabilitation’s with this option. These loans also protect lenders by allowing them to insure the property based on future value, as opposed to current condition.
Talk to your bank or credit union to explore all of your options for your home remodel financing!