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Financing

The greatest challenge of implementing home improvement modifications is cost. We understand that and want you to know that we are here to work with you to provide what you need in the most affordable way possible. As a home owner, there are a number of financing options for remodeling a home. Below are the most common and how they can work for you.

 


 

Cash

Before we discuss ways in which you may be able to leverage your property we’d like to note that paying by cash is often the best way to fund your home improvements. Keep in mind, however, that when paying by cash you also may be tying up money that could be earning interest in other investments. It’s best to compare interest rates between those of financing a project and investing funds. We recommend meeting with a financial advisor in making such a decision. Interest on a home improvement loan may be tax-deductible whereas paying in cash is not. Just some things to consider as you look at your payment options.

 

Home Improvement Loan

The Federal Housing Administration (FHA) offers two loan programs — Title I and Section 203(k). With a Title I loan, you can borrow up to $25,000 for improvements to a single-family home. These are at a fixed rate and are protected against risk of default. A Section 203(k) program is perfect if you’re looking to purchase a fixer-upper or foreclosed home. With this, you can receive a fixed or adjustable single- or long-term loan that covers both the acquisition and improvement of the property.

 

Home Equity Line of Credit

If you have equity in your home, this is an easy and effective way to gain necessary funds. Usually a credit line will be created for you based on 75%-80% of the appraised value of hour home, minus the balance of the first mortgage.

 

Second Mortgage

Whereas a home equity line of credit is an open loan, a second mortgage establishes a fixed loan amount and rate which may be easier to manage if you are concerned about overspending.

 

Cash-Out Refinancing

If interest rates have gone down since you first purchased your home, it may be worthwhile to refinance. Doing this will leverage the equity in your home to pay off the existing mortgage and provide you with additional funds that can be put towards your remodeling project. When deciding towards this option, be sure to consider the amount of time you plan on living in your home and the number of years remaining on your current mortgage.

 


Managing Your Budget

Once you’ve decided on the financing option that is best for you, the next task is making sure you stay on budget. Here are some helpful tips to put you on your way:

  • Only spend 80% of what you can afford and save the remaining 20% for possible mishaps — unforeseen problems, miscellaneous charges, and project plan changes.
  • Know that any changes to the original contract will cost you extra. Plan ahead and try to cover all bases from the beginning.
  • Stay focused. Keep with your original remodeling changes as much as possible and be willing to reserve additional changes for a later date. The exception to this rule would be if an added change proves more cost-effective at the present time. In this case, weigh out your needs to ensure this is a change that is truly necessary and affordable.