We are hearing that a lot of people (would-be clients, if you will) are reaching a mental road block caused by lack of information.
They have a home project they want to take on…maybe even need to…but all they’ve heard is how difficult financing is obtain these days or that construction loans just aren’t available.
We didn’t have the answers, but we knew who would. Fern Lam is a long time associate of Lakeville Homes. We like her, her business ethic and who she associates with. We trust her.
Certainly every situation will be different, but here are some general guidelines, provided by Fern, on how to finance your remodel.
First, if you have been in your home for a few years, then chances are you probably have some equity or “cash” in your home to access those funds for the project.
Typically, Lenders will allow you to access 75%-85% of your current home value. The actual amount will vary dependent on your credit score and your qualifying income.
Example, let’s assume that we have a kitchen remodel for $75K. Home value is $1million and the currently loan balance is $450K. Using an 80% Loan-to-Value guideline, there is about $350K equity available to access for the project. You can get a new mortgage loan in the amount of the current loan balance plus the $75K for the kitchen project. For this example, the new loan amount would be $525K.
Few things to keep in mind:
· If you don’t need all the funds at once (typically remodel projects don’t need all the funds upfront at one time) then consider getting a home equity line of credit (HELOC) instead of a new first mortgage. HELOCs allow the homeowner to draw amounts of money against the line of credit as the project progresses. The advantage is that you would only pay interest on the amount you draw. You can go to your local Credit Union or Bank to apply for a HELOC usually there are no closing fees to you. Most people move away from a HELOC because the fear of the interest rate being adjustable. It is a valid fear. An option to overcome that fear is combine the two loans by refinancing into one new loan once the remodel is complete.
· Financing your remodel project may not impact your payments as much as you may think. Typically for every $10K you finance on a 30 year fixed loan on a 6% interest rate, the payment is $60 per month. So think twice before you use up all your liquid savings on your remodel.
· It is recommended that you speak to a trusted Lender to find out your options on how to finance the project and meet with a Home Builder that can get you a cost projection. With the current Housing Market there have been many changes that can affect you options.
· When remodeling your home, you have many tax advantages that you can claim on your taxes. Be sure to talk to your tax advisor.
Now you are armed with more information so you can make the best decisions for you and your family (and your home too).
