Financing Your Remodel: 5 Tips for Adding to Your Mortgage
Remodeling your home can add thousands of dollars to its appraised value. Adding a new bathroom or bedroom can make it easier for your growing family to stay in the same home. However, you have to be able to pay for it. What are some of your options if you want to refurbish your home by adding on to your current mortgage? We Know Money help with mortgage choices like this, so visit them if you want more insight into this issue.
Your first option is to apply for a cash-out refinancing. What happens is your mortgage is refinanced for a higher dollar amount than what the house is worth. You then take the excess for use in remodelling your home. The principle amount of your mortgage plus the excess amount is then used to determine your new payment. Any leftover money can then be used for whatever else you need it for.
Home Equity Line Of Credit
Borrowers who wish to borrow against the equity in their home should pursue this option. What you have is a second mortgage that is in addition to your first mortgage. It is referred to as a second mortgage because the lender has a junior lien on the mortgage. They have the right to nix any consolidation or modification deal that you make with your main lender. However, the home equity loan comes with a lower interest rate than other loans.
Refinance And Renovate Programs
Some banks will give you the opportunity to get a loan specifically to renovate your home. These loans are easier to get because you don’t need as much equity in your home to qualify. Getting a loan such as this one depends on the amount of extra value you add to the home. Borrowers can usually get a fixed or variable rate loan as well. This means borrowers with lower credit scores may be able to qualify.
Opening A Secured Line Of Credit
You may want to take out a personal loan if you can’t get a home loan. Personal loans can come with a relatively high rate of interest. However, securing the personal loan with collateral will usually bring the interest rate back down to something more reasonable. An interest rate of 8-10 percent can be expected. Secured lines of credit may cause you to lose your house if you are unable to make the payments. Be careful when securing a line of credit with any type of collateral.
Obtaining An Unsecured Line Of Credit
An unsecured line of credit can be a good idea for anyone who wants to establish or rebuild their credit. This credit line can be established as a revolving line or a non-revolving line of credit. The revolving line of credit will enable you to borrow more money as you pay down the debt. A non-revolving line of credit is closed as soon as you pay down the original debt. The only downsides to an unsecured line of credit are the lower balances and higher interest rates for borrowers with low credit scores.
Adding to your home can be a great way to make it more attractive on the open market. However, make sure you are able to get an affordable loan to help you pay for the additions. Keep in mind that some remodelling projects don’t add as much value as you think they do. Ask for an appraisal before any work is done.