Home Improvement Loans

Home Improvement Refinance

If you are looking to renovate your home and are concerned about how to pay for it you may want to consider a home improvement loan as an option.  There are a few different ways to do this depending on the size of the project and your goals. 

1)  Home equity loan - You can typically take up to 80% of the value of your home. With a home equity loan you are only paying on the funds you borrow not the all the equity at once.  If you have a home equity line of $50,000 but only borrow $15,000 in the first year you are only paying interest on that $15,000 vs. paying on the entire $50K from the beginning.  The interest is tax deductable which makes it a more attractive offer compared to using a credit card.

2) Cash out refinance - Take a lump sum as a loan and use the money for the home improvement project.  Once again the interest is a tax deduction however be aware and plan for unexpected costs.  It is not unheard of for construction cost to be 20% - 30% more than they were estimated to be.  The last thing a homeowner wants is to be in the middle of a large renovation and run out of money. 

Some of the advantages to renovating are; staying in your home and your neighborhood, personalizing your home to your taste, or creating more space.  By adding space to your home it can become more functional and with new windows and insulation more energy efficient.  Renovating your home adds value to your home and therefore in the long run will generate more equity.

How do I determine how much equity I have in my home?  Subtract what you owe on your mortgage from the fair market value of your home.  For example if your house is worth $200,000 and you owe $100,000 on your mortgage you have $100,000 in equity. 

With a loan to value maximum set at 80%.  0.80x $200,000 = $160,000  Therefore you can borrow a total of $160,000 against the home.  With an existing mortgage of $100,000 you be then be able to take cash out of up to $60,000.

What’s next?

Apply for a loan and get your questions answered.  Plan and budget your project and make sure you have extra funds available just in case. 

-- Michael Shea

Michael is a loan officer with Northeast Financial in Middletown CT

To contact Michael with questions

860-788-7237

www.linkedin.com/pub/michael-shea/31/492/17b/