Taking the plunge into remodeling your house is a major decision, but figuring out how you’re going to pay for all the changes you want to make can be even more daunting than the project itself. This guide is here to help you. There are actually several different types of loans that can be used to finance renovations. As you read this guide, you’ll learn more about them and, hopefully, figure out which one is right for your situation.
The first thing you need to do when you realize you’ll need some sort of financing to do your upcoming project is take some time to think. There are a few key questions you should answer before you start researching loan options. This will help you determine which types of loans and lending institutions you ought to be seriously considering.
- How much money do I need to complete my project? – Remember, you may not have to finance your whole remodeling job. You may have some money saved that you can put towards materials or labor.
- What kinds of loans will I qualify for? – If you have poor credit or other issues that will prevent you from getting certain types of loans, you shouldn’t even consider them, as it will waste your time and the potential lender’s time too.
- What lenders am I willing to work with? – Some people want very specific types of loans that simply aren’t available everywhere; in these cases, they have to be selective about where they are willing to go. The same idea holds true for people who want to be able to visit a physical branch; they should not spend time researching options that don’t have offices in their areas.
Here, we will take a look at some of the most popular loan options for homeowners who are preparing to start remodeling their houses. Some common choices are detailed below.
- Home equity loans – Home equity loans are sometimes referred to as second mortgages; these offer many of the same perks as standard mortgages, such as receiving all of the money in a lump sum, but without any closing costs since you already own the home. Most home equity loans have to be paid back in 15-30 years’ time, and their rates tend to be a bit higher than some of the other loan options remodelers have, but this may be worth it in your situation.
- Home equity line of credit – Home equity lines of credit differ from the aforementioned loans in that they are generally doled out in portions; you receive a “credit limit” from your lender, and you can borrow up to that amount of money to renovate your house. Taking all the money at once would be like maxing out a credit card. Most home equity lines of credit have to be paid back within 10 years. They also have adjustable interest rates, which can be a pro or a con for homeowners depending on the current market.
- FHA 203(k) mortgages – Federal Housing Administration-backed 203(k) mortgages are an option for people who meet certain qualifications. For one thing, they are not usually very large loans, so you can’t redo your house from top to bottom with them. For another, you must be willing to roll your first mortgage and your new 203(k) mortgage into one loan, meaning your final monthly payment will probably be higher than it was before.
It is important for you to speak to a qualified lending specialist before you choose any remodeling financing option.
The team at Hatch Homes is excited you’ve decided to visit our blog and sincerely hopes you will consider us for your upcoming project. We are passionate about helping families throughout the Carolinas make they dreams they have for their houses into realities. We look forward to making your vision for your space come true soon.