Mortgages and Loans to Pay for Home Renovations

If you are wondering if there are ways in which you can pay for a home renovations loan, then we are here to tell you how one can you use home loan for renovations.

The first and foremost thing we do at Bank rate is to aid you in making decisions that will affect you positively in terms of your finances. Moreover, we endeavor to uphold editorial integrity at a high level even as we move  step by step to make money.

When you decide to remodel and renovate a home, the average homeowner needs to find a way to finance a big project. We aim to show you how to engage in cost-effective financial programs that will help your new renovated house come true.

Is There A Need for A Home Renovation Loan?

Not all homeowners can afford to pay for a home renovation out of pocket. Besides the labor cost, materials, as you plan to renovate the house, such as the architectural costs, inspections, permits, and miscellaneous costs that need to be taken care of. In most cases, the budgeted cost of renovation could rise to over 10% of the initial costs on average.

The many options of home renovation loans (in other words, home remodeling loans)include Fannie Mae Homestyle loan, FHA203 (k) loan, and Home equity loan. These require to have a minimum credit score of 620.

Others, such as Cash-out refinancing, require a credit score of 640.

Factors to consider while choosing the best renovation loan.

• The amount you wish to borrow- working with a financial organization with experience in the mortgage industry will help ascertain the amount that will fit your renovation project.
• Eligibility- This is important to gauge the level of the finances that one is ready to put aside for remodeling besides the loan.

The Drawbacks of a Remodeling Loan

There are several drawbacks that one should watch out for before embarking into the project such as;

• Increasing the cost beyond the value. One may never realize any savings out of the remodel project if proper planning was not done.
• It’s also essential to weigh the remodel's return value, even if it’s for personal use. This will enable one to make a conclusive comparison of the identical houses in the neighborhood and ascertain if they could fetch the same value with the current prices in the area where you live.

Costs Involved In a House Renovation Project

The cost depends on the loan value and the type of finance that one decides to use. One of the costs is the interest amount on the loan itself, which also depends on the number of years and the rate chargeable.

You will be expected to pay between 3 and 6 percent on the new mortgage home improvement loan (house renovation loan) as closing costs for cash-out refinance of the existing mortgage.

To help a homeowner make an informed decision about these loans below is an explanation of the available financing options.

Government-Backed Home Renovation Loans

Fannie Mae’s HomeStyle Loan

This is a loan that allows homeowners to meet their repairs needs or renovation projects.

One can qualify for up to 75% of the entire home renovation costs per the certified contractor’s estimates. Besides, the amount is placed in an escrow and disbursed in trenches to monitor the home management project is fairing on and avoid misuse of funds by the borrower.

How much down payment do I need to get a house repair loan? The eligibility requirement for this loan demands that one obtain a credit score of 620, make a down payment of 5% of the purchase price, and a certified contractor must submit the cost estimates.

The only demerit with this loan is that it does not give the borrower freedom to use the money because it’s released from an escrow account as the project progresses.

FHA 203(k) Loans

With the Federal Housing Administration loans, borrowers can access loans for various projects ranging from minor improvements to a total overhaul.

For those with imperfect credit, these types of loans is a great choice but just note that the loan might fault if the homeowner is trying to resell the property within 90 days.

With an FHA 203(k) loan, the borrower does not have access to the funds since they are deposited in an escrow account to manage the project funds efficiently.

The loan also requires one to use a qualified 203(k) consultant. There are two types of FHA loan basically;

• Limited FHA 203(k) loan is meant for minor renovation with a capping of $35,000.
• Standard-Designed for an extensive remodeling project and must have a qualified 203(k) consultant who must give the progress of the project.

Private Home Renovation Loans

Home equity loan or line of credit (HELOC)

A home equity loan is well known as a second mortgage, and some of its characteristics include;

• Low-interest rates compared to unsecured personal loans. Constant repayment amount since the schedule is provided on the onset of the loan.
• Has an upfront fee, loan processing fees, broker fees, and document fees. However, it’s worth noting that the interest is payable once the lawn has been drawn.
• For homeowners whose primary intention is to renovate a large project, this loan fits them accordingly. It’s however, important to note that the home will be used as collateral and in the event of default, it will be repossessed and leave you empty-handed.

Cash-Out Mortgage Refinance

Cash-out mortgage finance gives homeowners the freedom to access the loan and use it as per their needs. They also have low-interest rates and flexible repayment periods.

However, just as the HELOCs home renovation loan, one will be required to use the home as collateral, and as such, one must manage the finances with care to avoid misuse and fall into default. This could mean direct repossession of the home even before the net present value is realized.

To qualify for cash-out refinancing, on average one must place 20% of the deposit and have a credit score of 640.

Personal Loans

Can you get a loan to fix up a house? Personal loans are flexible loans that do not require collateral or appraisal. It’s also unsecured, giving one the relief that the home will not be repossessed in default. However, it requires high credit scores starting from 740 to assure the lender the individual is capable of repaying the loan. With such scores, one can get a loan at an interest rate of up to 10%, which is nearly half if not more of the average rate on most credit cards. With so many opportunities to obtain mortgage with renovation loan (in other words, remodeling loan mortgage), one can hope to that the purchase home is a forever home.