Renovating a home is at the forefront of many homeowner’s to-do lists. The biggest hindrance to getting things done is financing. If money was readily available people would upgrade their homes as styles and trends come and go.
The most expensive home renovation is kitchens and room additions. They can easily run into the five-figure range. These improvements also add to your resale value.
There are different types of renovation home loans people can apply for. The roadblock often comes when creditors review your annual income and credit scores. Although someone qualified for a home mortgage, things change and they may not be in the best position financially, 10 years down the road.
Still, there are opportunities to pay for home renovations with a loan.
Are you in need of funding for an upcoming renovation or remodeling project? Keep reading for seven ways to pay for the renovation and enjoy the home of your dreams.
Understanding Renovation Home Loans
Renovation loans are for financing projects used to remodel a home or to bring a home up to code. They can apply to a home that is already owner-occupied. Or it can be an initial home purchase for a property that is in some level of disrepair.
The benefits of the loans are they increase the value of the home in most instances. They also improve the overall property value of the neighborhood.
There is a saying that you don’t want to own the most expensive house on the block. The same is true for the ugliest. Allowing a home to deteriorate is a no-win situation for the person who owns the home and their neighbors.
1. Home Equity Loan
Start with a home equity loan. This is often the easiest way to pay for home renovations. When you purchase a home it is typically through a mortgage. As you make your monthly payments equity is building in the home.
During the upturns in financial markets, a home’s value can increase at a rapid rate.
When you need access to a large amount of money, you can refinance your home’s mortgage at its current value. The money you are eligible to receive is the difference between the amount you already owe and the current home value.
2. Retirement Loan
Retirement accounts are intended for your living expenses after you stop working. In life, things happen and a person may need to access those funds early.
Borrowing against your retirement plan is for hardships. If the renovations needed are for the safety of the homeowner or the structure, it can be considered a hardship.
Before going this route, understand there are tax penalties for early withdrawals. If you can repay the money before the end of the year, you should do so.
3. FHA 203K Loan
An FHA 203K Rehabilitation loan is how to pay for renovations on a home you are about to purchase. This loan is backed by the Federal Housing Administration and is geared towards properties in neighborhoods where property values are on the decline.
The stipulations for the loan is that the renovations must be completed within six months. The home purchaser than converts to a standard 15 or 30 years mortgage.
4. FannieMae Homestyle Renovation Loan
Similar to the FHA 203K loan, the FannieMae Homestyle Renovation Home Loans are also designed to assist in rehabbing homes in disrepair.
Where the two loans differ is that this loan gives the property owner up to a year to complete the renovations. The loan also allows for funds to go towards properties with multiple housing units.
If you inherit property and need to get it renovated the FannieMae Homestyle loan is an option worth considering.
5. CRA Loan
Community Redevelopment Areas often have funding available to residents that reside within the boundaries of the CRA. Check with your local county or city municipality to see if an active CRA is funded.
In these instances, you can apply for loans that often are set at zero or very low-interest rates. The repayment periods are usually up to 10 years.
There are downsides. When calculating the amount of money you can borrow, the renovations must be required repairs to make the home liveable. You can’t borrow money to put in a new swimming pool.
Most loans offered under a CRA also provide the bare minimum. For example, if you need to remodel your kitchen, the funding will not cover top of the line stainless steel appliances or marble countertops.
CRA backed loans are considered a second mortgage. If you sell your home the mortgage will have to be paid off.
6. Private Investor Loan
Private investor loans are also how to get money for home renovations. Often when people think of a private investor they think of hard money loans. The truth is, your parents can be a private investor.
Always think twice about borrowing money from family and friends. If you can’t repay the funds it can ruin relationships.
Sit down with the person or a group of people and be open and honest about what you are trying to do. Have a contract prepared to show the terms and conditions, as well as how much you can repay each month.
7. Short-term Line of Credit Loan
A line of credit loans does not involve place a mortgage on your home. This loan is based on your credit and ability to repay.
The lender will approve you for a set loan amount and interest rate. You can take all of the money or borrow against the available balance as you go. You’ll only be responsible for the amounts you withdraw.
Renovation home loans are available. You need to do your research and determine which one best suits your needs. Your home is a valuable asset and investing in its upkeep is important for many reasons.
Don’t hesitate to go in search of the money you need to keep your home looking picture perfect.
Are you looking for more home tips? Check out our home and time management section for great articles for homeowners.