There are different ways you can fund a home improvement or renovation. In this article, we have compiled some alternatives you can consider before you make some unnecessary financial mistake just to keep your beloved home in shape.
If you have some extra cash or just received your tax refunds, you can maximize that resource by using it to finance the needed improvements. Or, if you are still on the planning stage, allocate some of your budget to a savings fund for the purpose. Using cash instead of getting a loan is definitely cheaper and less hassle.
If the renovation necessary costs more than the equity you have on your current home, a construction loan may be a viable option. However, know that these loans must be refinanced into a traditional mortgage once the renovations are done. If you’re going for major, a short-term, full construction loan is a choice you can explore.
FHA 203K Loan
If there are many reparations that need to be done to the home, you may consider getting an FHA loan under its 203K program. It is designed specifically for home renovations. You can borrow as much as $5,000 to $35,000 with this program. However, you should be willing to pay for a mortgage insurance.
Depending on your location, there are a variety of private and government-funded loans and grants available to assist homeowners in their renovation intent. Check with your local towns and counties for their availability.
If you have earned significant equity on your home, a home equity line of credit (HELOC) is a very fine opportunity for those homeowners looking to renovate and improve their existing abodes. You don’t need a lot of equity to qualify, and you don’t pay interest until you actually use the funds. Such line of credit can also be renewable.
Homestyle Renovation Loan
If you don’t want to take out a second mortgage, a HELOC, or other costly financing methods, Fannie Mae’s Homestyle Renovation Loan can be considered. The amount you can borrow is based on the “as completed” value of the home instead of its present value and you can include some of what are usually considered luxury items such as landscaping or the pool in this loan option. Plus, there are lesser hassle to go through compared to an FHA loan.
If you are 62 years old and above and fully own or almost paid off your home, a reverse mortgage is a smart way to tap into your home equity. This type of loan allows the eligible senior to tap into their home equity and use the proceeds for whatever purpose they deem fit. The loan is not payable until the borrower moves, sells the house, passes away, or fails to keep the conditions of the loan.
Title I Home and Property Improvement loan
These are private lender programs insured by the HUD which can grant eligible, successful applicants up to $25,000 in loan proceeds for the purpose of home improvements. Ask your local lenders if they offer this option.