Home renovations cost an arm and a leg these days. If you’re a real estate agent looking to flip houses, you’re on an even bigger time crunch. Your time is money, and you need to start renovating before your mortgages outweigh your investments.
Don’t worry! There are multiple loans and financers available specifically to help you renovate your home. For example, home improvement stores give their customers credit cards and financing options.
When to Consider Home Renovation Loan
Ideally, you should take out a loan when your project budget is less than the required funds. If your renovation plans are absolutely necessary for keeping up your quality of life or bettering it, it’s imperative you get the loan. Do not consider borrowing money if the renovation is not absolutely required.
You must also keep in mind that these lenders will charge you a certain interest rate. Do you think you’re financially capable of paying back a higher amount in the future? If you’re already paying off your mortgage and other loans, taking out another loan for home improvement may be a bad idea.
Different Types of Home Improvement Loans
FHA 203(K) Loan
A Federal Housing Administration 203(K) loan is available for a wide range of homeowners and covers many types of renovations. You can apply for this loan even though your home is only a year old and you have bad credit. You must put down 3.5% of your total loan amount as a down payment and a credit score of 620.
For taking out a cash-out refinance loan, you must have at least 20% equity in your home. Once approved, your lender will give you the cash directly and you may use it however you like. The best thing about cash-out refinancing is that the interest rates are very low.
Home Equity Loan
Home equity loans are secured personal loans where you keep your own home as a collateral. The repayment terms are quite lengthy and the interest rates are flexible. To qualify for this loan, homeowners must have 20% or more equity on their home.
Credit Card Loan
Credit card loans are quick and easy with upfront cash to spend on your renovation project. The interest rates are very high, but you can always pay the minimum amount due while the rest of the loan carries over to next month. This loan is perfect for small renovation projects because the limit is usually $5,000.
Choosing the Right Loan for You
The first step in choosing the right lender is to understand the many different types of loans. Check you equity, credit score, and other investments before jumping into renovation loan. Refurbishing does increase the prices of your home, but keep in mind your buyer’s expectations as well.
If you’re unable to pay off your home equity loan, you can even lose your home. Remember that home renovation is expensive and takes up a lot of time. Don’t take out a loan if you don’t have the income to pay it off.