A beautiful home always makes it to the top spot in our must-have lists. We desire to build a gorgeous home, one that gives us the adrenaline rush and a “happy excitement” each time we think about it. But unfortunately, most people don’t manage to make their homes as attractive as they wish, with insufficient resources always being the mastermind behind.
The fear that one might not get enough funding to finalize their anticipated home remodeling projects usually scares homeowners. This fear prevents many from daring the journey. Fortunately, there are multiple ways you can comfortably finance home remodeling projects without being exposed to bankruptcy, or causing a dent on your savings account.
- Cash out refinance
Cash out re-finance is one of the easiest ways you can access funds to remodel a home. Most financial institutions can offer up to 80 percent of the original home value minus the mortgage. The ground-breaking advantage of using cash-out refinance is that it offers a huge sum of money compared to other alternatives!
Despite being a lifesaver, cash out re-financing will make you cough out closing costs which can sum up to a few thousand dollars.
- A home equity line of credit
A home equity line of credit is much similar to cash out re-finance but with a marginal difference. In this case, loans taken out are summed up with your existing mortgage and the debtor is provided with different payment schedules, terms and conditions.
The main advantage of a home equity line of credit is that unlike cash-out refinance, it does not have exaggerated closing costs but is subject to variable interest rates. This makes it less favorable to many homeowners.
- Home equity loan
Just like home equity line of credit and cash out refinance, this type of finance option is also credited against your home value. The finance option will give you a chance to acquire a loan independent from your mortgage but will possibly expose you to higher interest rates. These interest rates are sometimes similar to cash out re-finance but to some extent are lower than home equity line of credit.
- Remodeling construction loan
When you require a huge sum of money but your home is not worth enough to serve as security, the next option you should consider is a remodeling construction loan. A remodeling construction loan is quite similar to any other loan option but is often aimed at funding remodeling and construction projects.
The finance partner will lend money in terms of possible future value rather than the current value of the house. The opportunity gives you a chance to borrow a higher lump sum of money compared to the previous three loan options.
- FHA 203K loan
FHA 203K loan was approved under the federal laws under section 203 (k). The loan, backed by the federal government, is meant to help individuals buy old homes including those that might require renovations before they can be fit for settlement.
Because the loans are supported by the federal government, most of the signature lenders tend to feel safer and therefore ready to lend money more willingly and at lower interest rates. Finances under this classification can be an important source of capital to people who intend to buy new homes.
One of the advantages of FHA 203K loans is that they offer a 20% contingency value in case remodeling costs more than the estimate and on top of that, it offers up to six months mortgage returns to cover for costs of alternative home when remodeling is ongoing.
It’s also important to note that the finance option does not cover for luxury improvements like adding a basketball pitch or a swimming pool to a property.
- 401 (k) loan
401 (k) loans are aimed at covering retirement plans. You should avoid taking out 401 (k) loans unless it’s the last option, or you have an alternative plan that will provide cover for the money borrowed.
401 (k) loans are governed by the state law, therefore, are subject to government control. One of the existing legal policies over 401 (k) loans is that you cannot borrow more than fifty percent of your earned reserve. The earned reserve is commonly referred to as the vested amount.
Moreover, 401 (k) loans are limed to employees and it’s expected that disbursed loans are completely paid through consecutive monthly salary deductions. A major advantage of this loan option is the associated low-interest rates, and the ease of access, which makes it available to employees. Unfortunately, not many opt to loan from the reserves as they consider it as a retirement plan.
- Mortgage reverse
Reverse mortgage funding is also one of the last loan options considered by homeowners for the purpose of remodeling. To begin with, you must be more than 62 years of age for you to qualify for this loan option.
One major advantage of this loan is that it does not require repayment unless the owner of the home is no longer the legal proprietor of the premises. Also, it allows the owner to directly draw value from his or her home, therefore leaving less home value for the individual set to inherit the property.
Several countries have adopted and brought forth reverse mortgage loan options for the sake of the aged members of the society. This initiative takes into consideration the fact that the aged members of society may no longer have the energy and power to contribute to the workforce and earn money to enable them to draw value from their home.
In case you qualify for the loan and are in need of finances to renovate or upgrade your home, consider drawing some value from mortgage reverse and still have enough to live on. This loan option can be a wise choice because your legal inheritors might benefit from it as well.
Supposing you own more than one house with different stipulated values, taking out a mortgage reverse from one of the houses can prove to be economical. This is because in case you’re unable to repay the loan, you can put up the remaining homes for a mortgage or sell them out based on your marked price value.
Basically, it goes without saying that there are tons of options you can consider when seeking financial support. It’s up to you, as the project manager, to choose the least costly financing option, evaluate the pros and cons of each of the loan options and make a decision that will suit your needs.
Also, if you are young, working and expecting regular cash influx, you might consider a cash-out refinance or home equity line of credit. If you are old and you don’t expect any cash flow in the near future, you might consider 401 (k) loan or mortgage reverse to fund your home remodeling project.
Remember, wrong decisions might cost you dreadfully, but if you make the right choices, you might end up a very satisfied homeowner.
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