We got a real consumer question from a real consumer asking us about financing his home renovation. Johnny gave us some dollar amount details, as follows: His house was appraised for $300,000. He owes $90,000 in loans on the house. And he would like to invest $100,000 in the renovation. So he asked us what his best option might be to finance the updates.
As with any large expense, the best way to pay for home renovations is to save. If you can save up money you can avoid incurring more debt. But not every homeowner has the time or the finances to save up enough cash for this kind of project. In that case, there are a variety of loans and other options that may work to fund your home renovation.
A home improvement loan is intended specifically to pay for home renovations and other improvements. Home equity loans and home equity lines of credit are ways of borrowing against the equity you have in your home. The amount of the loan or credit line is based on the difference between the current value of the home and what you owe on the mortgage. The main difference is that a home equity loan is typically fixed-rate, while equity lines of credit are variable-rate.
Another option is a cash-out refinance. In this case, you are taking out a new mortgage that is greater than what you owe on the current mortgage. The difference between the current mortgage amount and the new mortgage can be paid out in cash to the borrower/homeowner.
However, whatever type of loan you choose, make sure you read the fine print and understand the details of the loan. If you are borrowing against your equity, your home is being used as collateral. If you can’t make your payments, you may be in danger of losing your home. You will also be adding another monthly payment on top of the $9,000 you already have left on your mortgage.
Similarly, if you refinance, you will likely end up with a much larger loan than what you currently owe. That loan will take longer to pay off, so you won’t own your home free and clear for many more years.
Before taking any type of loan, meet with multiple reputable lenders to discuss your options and get important details about the terms of the loan. And never sign anything you haven’t read or don’t understand.
Once you have the loan, you’ll need to find a reputable, reliable, and fair contractor. Luckily, that’s easy to do by visiting TrustDALE.com. All of the contractors listed on our site have undergone Dale’s 7-point investigative review process and are backed by Dale’s trademark $10,000 Make-It-Right Guarantee.