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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 refinancingRefinancing 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.

  - 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.

  - 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.

  - 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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