Most homeowners save for their home improvement for months, if not years.
One of the better methods to finance a remodeling is to use your hard-earned cash, but there are other options. If you’re planning a large renovation project, your cash savings might not be enough to pay it, so you’ll need to check into other financing options.
Here are a few more popular ways to financing your home improvement project:
1. Home equity
Simply put, home equity is the difference between the market value of your home and the amount you owe on your loan.
You may need to have your lender perform a property value to determine how much equity you have in your home to use for your remodel. Your lender will also look at your present loan to value ratio (LVR) to ensure that you have enough equity to secure the loan.
When you apply for a home equity loan, lenders consider your income, expenses, credit history, borrowing capacity, and the market value of your house – it’s quite similar to qualifying for a standard home loan.
2. Refinance your mortgage
You get more income when you refinance to renovate, which you use to fund your renovations. To obtain the renovation cash, you might refinance with your present lender or refinance with a new lender and increase the amount you owe.
As a result of refinancing your mortgage rather than taking out a personal loan to pay your refurbishment, you’re more likely to get a lower interest rate. Personal loan interest rates can be as high as 10% or 11%, whereas most home loan interest rates are currently in the range of 2% to 3% – or even lower.
You may be able to acquire a better rate and features by refinancing to a different lender, but you will incur refinancing expenses.
3. Construction loan
You could also get a construction loan to help you fund your renovation.
A construction loan is a form of home loan that is used to finance large home improvements or the construction of a new home. A construction loan, unlike a conventional home loan, is drawn down in phases as the project advances.
Getting a construction loan approved with your lender is not the same as getting a conventional home loan. You must give your property’s plans, such as floor plans and the kind of materials being utilised, to your selected lender so that an appraiser may review your design and estimate how much the expenses will be once the property is done.