Every homeowner has a list of projects and renovations they want to do their home, such as renovate the kitchen, increase the closet space, build an extension, update the HVAC system, and more. However, what challenges most dream makeovers is how much it will cost the owner.
Home renovations will add value to your property and make it more aesthetically appealing. Unfortunately though, the majority of lenders will only offer a mortgage on a land property that is ‘habitable.’ Before you can compare different methods of loans, you will need to think about:
- How much you need: the amount needed to cover the cost of home renovations and avoid unnecessary interests on the loan.
- What you are able to pay monthly: the term of the loan will affect how much you will be required to pay back – the longer the term, the cheaper the repayments.
Whether you want to make a few touches such as a simple paint job or completely renovate your home, there is an option that will suit your needs.
If you already own your home, the most efficient way is to re-mortgage. This is often the cheaper way to finance your renovation. However, you must have a sufficient amount of income to prove that you can afford repayments. You will need to consider your principle home’s equity, credit rating, and the amount you will need for the home improvement.
Before you consider this option, you must understand how a reverse mortgage loan works. Unlike a conventional mortgage, a reverse mortgage does not require monthly payments. Instead, it marks interest on the amount borrowed without any due payment until the homeowner passes away. The value of the property will be used to pay off the balance and the remainder will be given to their heirs.
Alternatively, you can opt for a home loan instead of a reverse mortgage. Although the two funding types may sound similar, a renovation loan comes with better advantages. The most important thing is to find the right lender. For example, Plenti offers a loan package specially designed for home renovations, called the Renovations Loan. With this, you can gain a low-rate loan that suits your needs instead of applying for a general loan.
Using a credit card to pay for your renovation may be expensive unless you repay the total amount monthly. If the projects are modest and you repay the debt in months rather than years, you will likely have a zero-percent interest rate. Just be sure never to miss a payment or else your credit rating will fall and take longer than expected to pay off the high interest rates.
Loaner’s Tips to Keep in Mind
- Arrange funds first
- Do your research
- Use your own funds, when available
- Take advantage of credit facilities
- Include contingency funds
When you are ready, consult a broker who can guide you through lenders and proceed to the next step of a mortgage application. There are also specialist companies that offer short-term funding. No matter which route you choose, be sure to understand the contract and all that applies before you dive right in.