Understanding Your Options to Fund Your Next Remodel
For the majority of homeowners in Portland and beyond, the most daunting aspect of starting a home renovation is understanding how the project will fit into your budget. Luckily, there are a variety of financing options available to those who qualify, and we’ve put this all-inclusive guide together in order to help Oregon homeowners discover the best option for their upcoming home remodeling project.
1. Cash-Out Refinance
Many banks offer a cash-out refinancing option, a lump sum of up to 80% of your home’s total value, minus what is still owed on the mortgage. This is a straight-forward and flexible financing option for many homeowners. However, there are typically considerable closing costs associated with this type of refinance, often a few thousand dollars or more.
2. Remodeling Construction Loan
For homeowners that do not currently have enough equity in their home to pursue a cash-out refinance, a construction loan becomes a viable option. With this type of loan, the bank that you are working with will appraise your home according to its expected estimated value after your renovation is completed, which extends your borrowing potential.
3. Home Equity Line of Credit (HELOC)
A home equity line of credit is a desirable financing option for many homeowners because it allows the borrower to keep their original mortgage. There is a draw period after establishing this type of credit line, in which the borrower is only expected to make payments on the interest. The repayment period follows the draw period and is typically 10 to 15 years long.
This option affords the borrower a great deal of flexibility because they are able to borrow the exact amount needed for their renovation, and often does not come with additional closing costs. However, interest rates may not be as desirable when compared with other financing options.
4. Home Equity Loan
Similar to the cash-out refinance, a home equity loan is another type of loan that is secured against the value of your home. Rather than a line of credit, this type of loan offers a fixed amount lump sum without displacing your existing mortgage.
5. FHA 203k Loan
FHA loans are backed by the Federal Housing Administration, which makes them a great option for new homeowners buying a property that is in need of major repairs. Low down payments and reasonable interest rates make these loans attractive, but beware that they typically come with excessive amounts of paperwork and thorough vetting of any health and safety hazards that may be present in your home.
6. Borrow From Your 401(k)
Although it may not seem like the most popular method to many homeowners, dipping into your retirement account can be a viable option in certain circumstances. Although borrowing from a retirement account typically carries a limit of $50,000, the interest rates are low, the process is quick and easy, and the whole affair won’t be reflected on your credit report.
7. Reverse Mortgage
A reverse mortgage in an option that is best suited for homeowners over the age of 62 with substantial equity in their home. This type of loan is similar to a home equity line of credit, except that borrowers don’t make payments during their lifetime. Although this option can lessen the value of your home, thereby leaving fewer assets for the borrower’s heirs, it can be a viable option for elder homeowners looking to leverage the equity in their homes for a renovation.
Regardless of which financing option you may end up choosing to fund your next remodel, the conversation should always start with a financial professional. Schedule an appointment with your banker or broker around the same time that you begin to look into remodeling options.
Ready for the next step? Click here for a free quote from Straight Line Design and Remodeling.