There are several avenues for financing your home improvements, ranging from leveraging your home's equity or simply paying cash. Your financial situation and the scale of your project determine which route you should take. While paying cash and taking out a personal loan will be quicker, refinancing your property could give you more money to work with while lowering your monthly mortgage rate.
Many families looking to renovate their homes plan to live in their properties for years to come. Refinancing or taking out a second mortgage could be a good option for households that have equity in the property and a reliable source of income. You would only be able to refinance with a reliable source of income, but it is important to note that this type of financing puts your home as collateral should you miss payments. You should figure out which path is right for you so that you can be confident moving forward with your project.
Cash-out refinance
A cash-out refinance means replacing your current mortgage with a larger one, and you can keep the difference between the two. This would include any equity you have in your home that you have amassed through your monthly mortgage payments. You will want to understand the difference between your old and new loan so that the terms of your new loan are not worse than those you had previously. While taking out a large sum of money will certainly help with renovations, tacking on a terrible interest rate would be counterproductive. Adding value to your home should be done in the hopes of seeing a higher return when it comes time to sell.
Home equity line of credit
A HELOC loan, which means home equity line of credit, is a second mortgage that you take out on your property. It is a line of credit that is secured by your home. To apply for this type of loan, you must have equity in your property, meaning that your home’s value is higher than the mortgage.
The amount that you can borrow is typically calculated by taking 85% of your home’s value and subtracting the amount that you owe from that figure. This revolving credit can be used all at once or little by little, but whether you have a fixed or a variable interest rate, you will want to pay this loan back promptly. While your home is used as collateral, this revolving credit can be used continually each time it is paid.
Home equity loan
Similar to the HELOC, the total amount of a home equity loan is determined by taking 85% of the property value and subtracting from that the total mortgage amount. However, unlike a HELOC, the home equity loan is borrowed in one lump sum, which the homeowner would then pay down each month. These loans typically last around 15 years and carry fixed interest rates. This option is ideal for those who have already budgeted for their project and have found a lender offering a great interest rate. You can also use a home equity loan to consolidate debt. If you used Home Depot and Lowe’s credit cards for upgrades, it could be wise to combine these multiple payments into one with a lower interest rate.
Personal loan
Separate from the home equity realm, a personal loan can be obtained more quickly but features higher interest rates. Consider using a personal loan for smaller projects since it can be repaid quickly. Plus, you can skip the lengthy appraisal and approval process of an equity loan and start your project within days of application. Your credit score impacts the interest rate offered to you; the better your score, the better your rate. While personal loan interest rates are higher than equity loan rates, credit card interest rates are even higher.
Cash
An all-cash renovation removes the need to pay interest and negates any risk of losing your home to default. While it might take years to save up for the kitchen remodel of your dreams, a conservative approach demands prioritizing your current financial obligations before adding new ones. If adding on another monthly bill would stretch your paycheck too far, then you can save money for home improvements at your own pace. Although making monthly payments may be useful for increasing your credit score - and certainly allows you to complete the renovation on an expedited timeline - you will have peace of mind when paying cash.
Do you have a real estate agent?
If you are interested in Green Hills, TN, real estate, you should work with an agent with experience and enthusiasm for their profession. From questions about the contract to neighborhood recommendations, your agent should be confident in their industry knowledge and ready to offer a neighborhood suggestion. This quaint Nashville community has stunning homes and a close-knit community, and working with someone who knows the area will help as you explore Green Hills, Tennessee, real estate.
If you are looking for a home improvement project, your representation will help you act fast to secure a great deal, and they can offer contractor recommendations to ensure the renovations are just as smooth as the transaction. In terms of Green Hills real estate agents, David Hatef is one of the best and has been working in the real estate industry for over two decades. With a background in corporate law, David will negotiate fiercely on your behalf and guide you to the closing table with ease. Contact David to discuss home renovations and financing options.
