Until recently, getting money for a home remodeling project was impossible, as most banks and private lenders were not supporting those kind of projects. Now, you can apply for a home improvement loan from your bank and get it in less than 24 hours depending on your credit score.
A high credit score will boost your chances of getting your application approved. On the other hand, a low credit score could disqualify your loan application or limit the amount of money that you get from the bank for the project.
Here are tips to give you a clear perspective of the process and avoid the confusion associated with getting financing for remodeling your home.
• The total amount of money that you need for the project
• A rough estimate of how much you can get during the initial stages of the project
• Breakdown of the myriad of financing options available
• List down the lenders who are most likely to give you the loan
Virtually all banks require home improvement loan applicants to furnish them with a specific figure at the start of the engagement. Therefore, it is imperative to request for estimates from different contractors to get an average cost of the project. If you intend to hire a remodeling contractor, it is recommendable to start with a firm bid then break down the figure into materials and labor costs to help the loan officer to understand your budget.
You should also add 10% on every expenditure to cater for miscellaneous or surprises. Most people forget to include the cost of renting equipment and permit fees. Carry out extensive research to know the rental prices charged by different companies.
The interest rate is another major factor that you need to keep in mind when applying for a home improvement loan. The less the interest rate you pay, the more credit you can afford to get from the bank. One of the guaranteed ways of lowering the rate is by opting for an adjustable-rate mortgage (ARM). Usually, this kind of mortgage starts with lower rates because the lender is not locked into a fixed rate of 15 years or more. However, it is important to note that the rates can be adjusted every 6, 12, or 24 months thereafter depending factors such as the economy.
The longer the repayment term, the lower the monthly payments, but the total interest is usually higher. This is the reason why you will pay less for a 10-year loan than a 20-year mortgage. Your financial capability will determine the loan term.
Let us proceed and look at the various options available that you can use to finance the renovation project.
This kind of mortgages is preferred by most people because compared to conventional mortgages it offers relatively lower rates. You will get the full loan amount upfront, and you can repay it over a period of 15-30 years. Because the interest rate is constant, you will be able to budget for the monthly payments better.
Energy Efficient Mortgages (EEMs)
There are financial institutions that offer energy efficient mortgages (EEMs) to clients whose homes have a high R-value. This kind of financing will also improve your debt-to-income ratio by up to 2%. Concisely, energy-efficient homes have lower utility bills, and so the homeowners can afford to take and repay a bigger loan.
B & C Loans
B & C loans are ideal for people who have less than A credit or do not fit in the current income and employment mold. They are usually offered by brokerage houses, finance companies, credit unions, and some banks. The lenders use enticing introductory rates to encourage the potential customer to apply for this kind of loans. Due to the lender’s added risk, the fees and interest rates are usually higher.
If you opt for this kind of loan, it is essential to take time to study the terms and requirements to avoid inconveniences. You should also note that the terms and conditions that govern B and C loans are dynamic.
FHA 203 (k) Mortgages
One of the highlights of FHA-insured loans is that they give homeowners an opportunity to refinance their first mortgage and at the same time combine home renovation costs into a new mortgage. The loan amount is calculated based on the value of the home after the renovations not before. Therefore, because your home will be worth more after the upgrades, you will be able to borrow money from the bank than you would if the loan was to be based on the current value of the house.
Getting financing for remodeling your home can be a daunting task if you are not aware of the various options available. The financial experts at Getting Heart can breakdown down the facts and help you make the right decision. Contact them today to get unbiased and accurate financial advice.