Questions to Ask Before Financing a Renovation

Sometimes, residential renovations seem like a great idea until you start thinking about how much they are going to cost. If you don’t have enough money saved for the project (or multiple projects) you are thinking about doing, you’ll have to get creative from a fiscal standpoint. One option, of course, is to simply wait until you’ve saved enough to pay cash for your remodeling job. The other is to finance the project in some way. Here, you will uncover some key questions you ought to answer before applying for any kind of financing option.

Is the project worth the expense?

Although you obviously wouldn’t be considering a project that wasn’t worthwhile to you in some way, even if you think the end result will be more visually appealing than what you currently have, you need to spend some time evaluating the financial sense of a renovation job too. If, for instance, you are thinking about adding a kitchen to your finished basement space so you can rent it as an apartment for $500 a month, you’ll have to determine whether or not that extra $500 is worth the $10,000-$25,000 you are likely to spend on a kitchen renovation, particularly if you’re going to have to take out a loan to make it happen.

Is home equity an option for me?

In some instances, homeowners opt to use home equity lines of credit or home equity loans to make renovations. Going this route is usually only a good choice for homeowners who know the projects they are undertaking will add significant value to their houses. It is, however, essential for you to know the difference between a line of credit and a loan when it comes to utilizing the home equity you’ve built.

A home equity line of credit functions similarly to a credit card. You will have access to a certain amount of money through your lender, but you are under no obligation to spend it all. You will have the freedom to take out the sums you need when you need them. Typically, once the “draw period” closes (this timeframe will differ from one situation to another), the line of credit is converted into a standard loan, and whatever money was used will have to be paid back.

A home equity loan, on the other hand, functions as a standard loan in that you will receive all of the funds at once and will have to pay the entire amount back to your lender. It is important to note that there are certain tax benefits that can come with taking out a home equity loan, but you should look into whether or not you will qualify for them prior to applying. Furthermore, be aware that home equity loans involve closing costs, just like mortgages; they are typically between two and five percent of the overall loan amount.

Does my preferred contractor offer financing? 

Some general contractors find that it is lucrative for them to offer financing options to clients. If you aren’t interested in other financing options, including loans, but you also aren’t happy about putting your project off for a later date, this might be the right decision for you. Have a conversation with your preferred contractor regarding the options that are available. You might, for instance, be able to make small monthly payments over a period of time instead of paying a lump sum upfront for your renovation work.

The Hatch Homes team takes pride in not only providing our clients with amazing results but in offering exceptional service to everyone who hires us. Next time you are thinking about doing an exterior remodeling project, but you aren’t sure you can afford it, give us a call. We will walk you through the financing choices we offer and will help you find something that works with your budget.

More than just a contractor.

Hatch is your partner for exterior remodeling.

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