5 Ways To Finance A Home Renovation

Whether you are purchasing a home that requires a renovation or want to remodel your current home, home renovations don’t come cheap. According to HomeAdvisor, the national average to remodel a kitchen is $21,751* while the national average for a bathroom remodel is $9,472**. These popular renovations can add value to your home, but you still have to finance the project.

Depending on the scale of your home renovation, here are five ways to finance your home improvement project:

1. Save Up and Pay Cash

If you have the time, discipline and patience to save, paying outright for the renovation will eliminate future payments, finance charges and interest. This option is good for people who can do one small project at a time.

2. Apply for an FHA 203(k) Home Loan

The Federal Housing Administration offers home loans through companies, including Certainty Home Loans, to refinance or purchase and repair/remodel a home. Certainty Home Loans offers the FHA 203(k) Standard Renovation loan that permits renovation costs on repairs exceeding $35,000 including structural damage and extensive remodeling. This loan can be used by homeowners to refinance their existing mortgage plus the renovation costs into one loan.

Certainty Home Loans also offers the FHA 203(k) Limited Renovation loan for minor remodeling and repair of single family homes, where the renovation costs do not to exceed $35,000 or have any structural work.

Discuss all requirements of both FHA 203(k) home loans with your loan officer.

3. Apply for a Conventional HomeStyle Renovation

For greater flexibility to renovate your new or existing home, this home loan finances the total renovation costs up to 50% of the “as completed” appraised value of the home. The maximum loan amount is $424,100. Speak to a loan officer for all requirements of this home loan.

With both FHA 203(k) and Conventional HomeStyle Renovation loans, the value of your property is based on the “After Improved Condition” of your home. The appraiser considers the value added by the renovation work and makes a hypothetical condition that the proposed renovation will be completed as planned. The appraised value will be the value of the home after all renovation work is complete, not what the home is worth in its current condition.

4. Obtain a Home Equity Loan

A home equity loan is a second home loan financed at current interest rates. (Unless you own your home outright, then it would be a first home loan.) If you financed your home purchase when the rates were very low and have seen a significant increase in the market value of your home, a home equity loan would provide a lump sum to undertake a major renovation while keeping the existing interest rate on your first home loan. Interest payments on the home equity loan are tax deductible, too.

With the Home Equity Loan, the value of your home is based on what it is worth prior to renovation. The appraiser will not take into consideration the proposed renovation work to be done.

5. Use a Credit Card

Credit cards generally have higher interest rates than other types of financing. With home loan interest rates at historical lows, you’d be better off trying to avoid using a credit card to pay for a renovation in its entirety.

If you would like to know more about our renovation loan options, please contact a Certainty Home Loans mortgage professional in your state.



- Aug 29, 2017