Total or partial home renovation can be very expensive depending on the level of work needed. As a result, many homeowners try to avoid it as much as possible. However, you can’t watch your home deteriorate due to renovation costs. This would mean you have to find even more money to restore it. Consequently, some homeowners choose to sell their old house for a new one, instead of bearing the renovation cost. This is why new home buyers should be mindful when buying a residential property.
If you’ve chosen to go ahead with your renovation plans, that’s great. So, how and where can you get the needed funds for the maintenance if you can’t personally afford it? Is it possible to get a loan for such a venture? If, yes, what type of loan, and what are the terms? Keep reading for the answers to these and more.
Benefits of home renovation
Renovating or remodeling your home old home to the modern standard has numerous benefits. It helps you to:
- Increase your home value. Renovating your home means you are adding value to it; hence, increases the market value. This becomes greatly beneficial when selling your home.
- Improve the functionality of your home by customizing it to meet your needs and preference. This makes the home very comfortable and enjoyable.
- Increases your home lifespan, since all defects would be corrected
- Through renovations you can alter the style of your home if it looks out-of-date. This can give your home a more modern look to suit your taste.
- Lastly, renovation breathes fresh life into your old home, as it improves its aesthetical look.
How to finance your home renovation
Home renovation normally has huge financial implications depending on the level of work needed. As such, most homeowners are unable to afford it out of pocket. If you find yourself in this situation, there are ways to seek external resources for that important work.
Reverse mortgage
A reverse mortgage is for seniors owning a home and seeking to use their home equity for a loan. If you are a senior above 62 years and want to renovate your home, you can use a reverse mortgage facility for that purpose. But you should have paid a substantial part of your mortgage loan to get a reverse mortgage.
By now, you know how much you need for the maintenance work. What is left now is to contact a lender with all the needed documents. The lender will through a home appraiser evaluate your home to know its value and equity there is. Based on the equity, the lender can grant you the reverse mortgage loan. “Even before contacting a lender, you can use a reverse mortgage calculator to check how much you can get,” says All Reverse Mortgage, Inc., a large provider of reverse mortgages in Arizona.
Personal loan
Using a personal loan for renovation works is one of the best options you can ever have. It comes with low risks, and unlike a reverse mortgage, your home is not tied to the loan. You don’t need to put up your home as collateral when securing a personal loan, therefore, your lender cannot claim it in case of any default. That notwithstanding, there are requirements you need to meet.
Personal loans usually have a repayment term of between 12 to 60 months. The longer the term the more expensive it becomes, due to interest payment length. The interest rate depends on the lender and your credit repayment history.
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Home equity line of credit (HELOC)
You can also use a home equity line of credit (HELOC) for your home repair works. It uses your home as collateral to guarantee the loan. You can have up to 20 years to pay the loan and comes with lower interest rates compared to others. It comes with a withdrawal advantage. If you repay any part of the loan, you can later withdraw it in times of need. However, when you default on the loan, the lender has the right to sell your home to recoup the money.
So, taking HELOC means you are putting your home at risk to renovate it. It is therefore important to ensure that you understand the loan terms and can make payments on time before taking this loan.
Home equity loan
Another way to finance your renovation is by securing a home equity home. The lender uses the equity in your home as collateral for the loan. You have about 30 years to pay this loan, and when you default, you will lose your home to foreclosure.
Home equity loan comes in a lump sum so you have access to bulk money to undertake your renovation works. Interest rates also differ with time and usually close between 2% to 5% of the loan amount.
Government loans
The U.S. Department of Housing and Urban Development (HUD) program FHA 203(k) loan allows potential borrowers to include renovations in the amount for a mortgage. It could be used to finance a new home or refinance your current mortgage.
That aside, the HomeStyle Renovation Mortgage by the Federal National Mortgage Association (Fannie Mae) helps homeowners to finance their renovation. This is especially for new buyers purchasing an old home that needs renovation. You get enough money to buy the home and also undertake the needed maintenance work. However, the lender needs to approve the work detail and contractor to undertake it.
The bottom line
Your home renovation project must be well-planned and executed according to your financial strength. Since you are taking a loan for this project, choose a better loan option with flexible payment terms. Most importantly, you need to honor the loan terms and conditions to avert losing your home.
