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MAKING HOME IMPROVEMENTS
Home equity loans and mortgage refinancing have become one of the most popular sources of
funding for home remodeling and improvements. Following the
information below will help you make wise decisions when looking to
utilize a
home equity loan for your improvement plans
or to
get cash-out by refinancing.
Be practical with the choices you make for remodeling
Making home improvements is expensive. Did you know that the
average kitchen remodeling costs between $40,000 - $50,000. A good
idea is to evaluate what your ROI, return on investment, is going to
be before you start breaking any walls down. The amount of value
various home improvements add towards the
worth of your home is
going to be significant for some, while others won't.
Prior to starting any type of remodeling, check out some listings of
homes for sale in your neighborhood. Spot the more expensive homes
and try and figure out what features are making these houses
different from the rest. Also, converse with a local real estate
agent and ask what type of home improvements they consider to be the
most value adding.
Adding an extension, minor kitchen and bathroom remodeling, and
siding are all projects that will get you the most value for your
investment. On the contrary, remodeling an office or adding a
swimming pool are types of home improvements that will only add as
much value as seen by the beholder.
Get estimates
When formulating your remodeling plan, you should speak to several
contractors and get estimates. It is not uncommon for the price of
remodeling one room to range between $5,000 - $80,000. There
is nothing worse than
applying for a home equity loan and realizing
you will not be able to do the improvements you want because you
don't have enough money.
**Make sure you use contractors that are bonded, licensed and have
workmen's compensation insurance and liability insurance.
Learn more
on how you can properly choose a contractor.
Selecting your financing
You have multiple choices for financing your home improvement
projects. Below is a list of some of the more popular options:
- Cash-out refinancing -
Refinancing your mortgage is
a popular option for remodeling. Cash-out refinancing is when you
refinance your mortgage for more than you owe. For example: if you
owe $90,000 on a $250,000 home and wanted to borrow $30,000 for your
home improvements, you would refinance for $120,000 and get a check
for $30,000. Use our refinancing calculator to see if this is the
best option for you. Learn more about 'cashing
out'.
Benefits of cash-out refinancing: Lower interest rates. One monthly payment. Refinancing
typically will save you a great deal of money on your payments.
Cons: The process for refinancing can sometimes take a long time.
Also, depending on your existing rates and current mortgage rates,
it may not make sense monetarily to refinance.
Also, the
refinancing closing costs can be expensive.
** Learn more about the
pros and cons of cash-out refinancing.
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Home equity loan - These types of loans
permit you to borrow against your home's equity without impacting
your first mortgage. An equity loan will grant you a lump sum
payment that you will payback in month installments at a fixed rate.
Learn about
building equity.
Pros: Quick and hassle free method of accessing equity.
Cons: Interest is not always tax deductible. Rates tend to be
slightly higher than refinanced home loans. If you go into default
or your equity loan, the bank will foreclose on your home. The full
loan amount is due as soon as you sell your home.
Learn more about the
dangers of home equity loans.
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Home equity line of credit - A HELOC, home
equity line of credit, functions in the same manner as credit cards.
You will be provided with a credit card or checkbook that you can
use when you want. These types of loans have an adjustable rate.
Pros: Quick and hassle free method of accessing equity. Interest is
tax deductible. Offers higher credit limits and lower interest rates
than credit cards.
Cons: Interest rates will fluctuate. If you go into default or your
equity line of credit, the bank will foreclose on your home. The
full loan amount is due as soon as you sell your home.
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Unsecured personal loan - These
types of loans require no sort of collateral. However, interest
rates for unsecured loans tend to be higher than refinance or equity
loan products. Available loan amounts are also lower.
Pros: Simple process. Fixed interest rates. No collateral needed.
Cons: Higher interest rate. Not as flexible as an equity loan or
line of credit.
The options listed above are some of the more popular methods for
financing home improvements. For less expensive projects, consider
applying for a credit
card with low rates, and high limits. You can also
choose to use money that you have from
savings.
Managing the remodeling project
It is always a good idea to expect the final cost of the project
to exceed initial estimated by 10%. This will allow you to be able
to cover any unforeseen issues and/or expenses. Stay in touch with
your contractor to make sure that the project is getting completed
without any hitches!
Related Reading:
How Your Credit Report Effects Your Mortgage
Cosigning a Mortgage Loan
Buy, Don't Rent!
Determining How Much To Borrow for Your Personal Loan
Things to Do Before Applying for a Personal Loan
Cash-Out Refinancing vs. Equity Lines of Credit
Equity Loans vs. Lines of Credit
Costs of Equity Loans and Lines of Credit
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