What options do you have in remodel financing?
Many homeowners want to create dream spaces in their home and welcome guidance on the best way to pay for a home improvement project. There are many options that include:
- Paying with cash from savings
- Borrow the cash using your home as collateral
- Obtain a personal loan which does not require using your home as collateral to obtain financing
- Refinance your existing home and use proceeds to make improvements
The financing option for your dream kitchen depends on a number of factors. One is available resources. If you have sufficient savings, that may be the best option, even though interest rates are at near record lows. Many homeowners consider cashing in investments to pay for their remodels. That works, but recognize there is a tax exposure if you have made money on those investments. If you can make a higher return on your investment than you would pay interest on a loan, financing may make more sense.
Some homeowners opt for an unsecured home-improvement loan that does not require using your home as collateral to guarantee payment. You most likely will need to have a great credit rating to be eligible for an unsecured loan.
With home values skyrocketing another popular option is to refinance your entire mortgage and use the appreciation to finance your remodeling projects. The Wall Street Journal recently reported that home values increased 10.8% through the end of the fourth quarter of 2020. Replacing your existing mortgage with a larger one enables you to use the difference to pay for your new kitchen. Most mortgage lenders will require most borrowers to have at least 20 to 25% equity in their homes.
If you don’t have 25% equity in your home to refinace, an option may be a home equity line of credit (Heloc) loan. Fees for Heloc financing range between $3,000 and $4,000 plus the cost of a new title, recording fees and taxes. You need to plan ahead. Heloc loans can take two months or longer to be approved. Also note, that Heloc loans’ interest rates fluctuate. They are better financing options if you don’t plan to own your existing home for a long period of time. If you do, then a fixed rate refi or equity loan may be a better option.
What’s the best option for you to finance the kitchen and bathrooms of your dreams? Speak with a qualified financial advisor that can explain the pros and cons of different financing options. You can also call our showroom or visit us in person or virtually to learn of financing options that many of our clients have used for their home improvement projects.