- Options for Financing Your Home Remodeling Project – Remodeling Planning Guide
- Budgets 101 – National Association of the Remodeling Industry
- Cost vs Value- Columbus, OH- January 2016 Remodeling Magazine
And, here is a very helpful Q & A on financing from This Old House Magazine by Sid Davis:
How Much Can You Borrow?
Whether you hire a contractor or take on the work yourself, begin with an accurate estimate of what the project will cost. Lenders will insist on a specific figure before they work with you. If you’re hiring a contractor, start with a firm bid, broken down into labor and materials. Then add on 10 percent for surprises. On work you’ll do yourself, compile a detailed materials list with quantities, costs, and an accurate total. Include permit fees and equipment rental. Then add a cushion of 20 to 30 percent to be safe. Once you know how much you need, how much will you get? Despite the promises and hype lenders make in their ads and promotional materials, how much you can borrow hinges on your credit rating, the loan-to-value ratio, and your income. These factors also help determine the interest rate, the length of the loan, and whether you’ll pay points.Your credit rating. The best rates and terms go to homeowners with an A rating — no late payments in the last 12 months and no maxed-out credit cards. One or two late payments or overdrawn credit cards probably won’t knock you out of the game, but you might end up with a higher interest rate and a smaller loan.
What Are the Options?
Loan shopping often starts with mainstream mortgages from banks, credit unions, and brokers. Like all mortgages, they use your home as collateral and the interest on them is deductible. Unlike some, however, these loans are insured by the Federal Housing Administration (FHA) or Veterans Administration (VA), or bought from your lender by Fannie Mae and Freddie Mac, two corporations set up by Congress for that purpose. Referred to as A loans from A lenders, they have the lowest interest. The catch: You need A credit to get them. Because you probably have a mortgage on your home, any home improvement mortgage really is a second mortgage. That might sound ominous, but a second mortgage probably costs less than refinancing if the rate on your existing one is low. Find out by averaging the rates for the first and second mortgages. If the result is lower than current rates, a second mortgage is cheaper. When should you refinance? If your home has appreciated considerably and you can refinance with a lower-interest, 15-year loan. Or, if the rate available on a refinance is less than the average of your first mortgage and a second one. If you’re not refinancing, consider these loan types:
Home-equity loans. These mortgages offer the tax benefits of conventional mortgages without the closing costs. You get the entire loan up front and pay it off over 15 to 30 years. And because the interest usually is fixed, monthly payments are easy to budget. The drawback: Rates tend to be slightly higher than those for conventional mortgages.
Home-equity lines of credit. These mortgages work kind of like credit cards: Lenders give you a ceiling to which you can borrow; then they charge interest on only the amount used. You can draw funds when you need them — a plus if your project spans many months. Some programs have a minimum withdrawal, while others have checkbook or credit-card access with no minimum. There are no closing costs. Interest rates are adjustable, with most tied to the prime rate. Most programs require repayment after 8 to 10 years. Banks, credit unions, brokerage houses, and finance companies all market these loans aggressively. Credit lines, fees, and interest rates vary widely, so shop carefully. Watch out for lenders that suck you in with a low initial rate, then jack it up. Find out how high the rate rises and how it’s figured. And be sure to compare the total annual percentage rate (APR) and the closing costs separately. This differs from other mortgages, where costs, such as appraisal, origination, and title fees, are figured into a bottom-line APR for comparison.
Natalie Moore Home Savings Bank 614-841-9739 firstname.lastname@example.org