Securing a renovation loan is a great way to improve the quality of your home life as well as increase the value of your home. There are many reasons people want to get a renovation loan. You will need to plan your costs carefully. Ransom Kelly at Assurance Financial is here to share many tips and tricks in this week’s blog post.
Understand the Various Types of Renovation Loans
There are two primary ways to finance the renovation of a home: a home equity loan or a line of credit. You can also obtain a “cash-out refinance” or do “in-store financing”. Here are the key traits of each type:
Home Equity Loan: as the name implies, you will take a loan against the value of the equity in your home. Lenders will tell you how much of the home value you can borrow. Through this method of financing, you typically take out a set amount that you then have to repay.
Line of Credit: this type of renovation financing means you can borrow off a revolving amount of the home value. What you borrow will be capped, which is similar to how you have a limit on your credit card. You can also get fixed or adjustable rates for your line of credit.
Cash-Out Refinance: This type of renovation funding involves a new or second mortgage. You can take out the difference in the second mortgage as cash. Sometimes you will have higher interest rates or lengthy repayment periods. You will also only be able to take out against the equity in the home.
In-Store Financing: This is a very simple way to pay for repairs; you can open a line of credit at a hard ware store and finance the parts you need for home repairs. Of course, this may not cover the costs for contractors and labor. However, many stores offer zero-percent financing a lengthy repayment periods. You may save on interest payments you would make.
Other Types of Financing
Many other programs are specialized to the type of repairs you are making or to the program under which you are applying. These include:
- The FHA 203(k) is a program of the Federal Housing Administration, which can be used to help pay for renovations or for the mortgage.
- The Housing Improvement Program (HIP) is a grant program that helps people who are of limited means pay for home repairs if they live in qualifying areas.
- The Energy Efficient Mortgage Program (EEM) can come in the form of a government-backed mortgage. Various entities, such as the VA and the FHA, have their unique EEM programs. Your home is required to undergo an energy assessment from a qualified company for this program.
Ransom Kelly at Assurance Financial looks forward to speaking with you more about your renovation loan needs, we hope you found this week’s blog post helpful and welcome you to call us with any questions.