It’s exciting to make plans for home renovations. Whether you’ve just moved in or lived on the property for a while, making it truly your own helps you feel more at home. Nevertheless, projects like home additions require careful planning. You must consider several factors, including the expenses and your budget.
To ensure the success of your home addition, you must prepare ahead of time and ensure that your budget covers all remodeling costs. Depending on the materials and any complications that could arise, the cost of your project can easily go up over time.
Before selecting a contractor to build your home addition, evaluate your payment options, and decide which is right for you. Here are some of the most popular methods for financing a home addition.
Construction loans were originally designed to fund new home construction. Now, they have also become a popular way to finance major home renovations. This type of loan combines a traditional mortgage with an additional loan to fund home improvements and is based on the future value of your home after the proposed renovation or construction project.
Unfortunately, with construction loans, you may be required to refinance your home at a much higher rate than you’re currently on, making the closing costs higher. This is because the rates are based on the new value of your mortgage and your new construction or home addition budget rather than just the renovation itself.
A credit card may be all you need for smaller, one-time projects to make your home renovation dreams come true. Some cards are interest-free for the first few months. If possible, use a 0% introductory Annual Percentage Rate (APR) card to pay for the project so you won’t need to pay any interest.
Home Equity Line of Credit (HELOC)
This type of financing can be a first or second mortgage that draws on your equity. It is based on your home’s current value minus the amount you still owe on your mortgage. A HELOC allows you to borrow against a percentage of that amount at a variable interest rate.
The funds are made available through a revolving line of credit, much like a credit card. Available funds can be accessed anytime for whatever purpose you require over a 10-year draw. During this period, minimum payments are low and may only include interest payments for those who qualify. This changes during the repayment period, when the principal and interest are combined into a monthly fee, usually spread out over 20 years.
Note that a HELOC is a great option if you need a large sum of money you can use when and how you want it, making it ideal for home additions or other costly upgrades. However, it would be best to exercise caution when using your home as collateral. The bank may seize your home if you’re not able to make your payments.
Home Equity Loans
This type of financing also uses a second mortgage to access the equity in your home. A home equity loan, unlike a HELOC, is given as a lump sum of money. It is a fixed-interest rate loan based on a percentage of your home equity, but there is no draw period. You must start making monthly payments as soon as you obtain the loan.
A home equity loan may be appropriate if you know the amount you need for a specific home project and want more stable financing. Nevertheless, remember that you’ll still be using your home as collateral, so making your monthly payments on time is critical.
Consider how much equity you have in your home when deciding whether to refinance or not. Some homeowners opt to refinance their mortgage to fund an upgrade when the new mortgage has a lower interest rate than the current loan they have. This is also ideal if you need a large loan to renovate your long-term home.
Personal Line of Credit
This is a revolving line of credit similar to a HELOC, except your home is not required as collateral. While a personal line of credit works similarly to a credit card, it typically has higher credit limits and lower annual percentage rates.
Not everyone has lived in their home long enough to be able to take advantage of their equity. If this is the case for you, don’t worry because there are other ways to finance your home addition. Obtaining a personal loan, for example, is frequently a simpler and faster way to receive funds.
In contrast to the paperwork and inspections required for refinancing or obtaining a second mortgage with a HELOC or home equity loan, a personal loan offers a streamlined application process based on basic information like your credit history and income.
Saving for your home addition is the smartest and safest way to pay for it. Saving your hard-earned money to pay for a home improvement project is more satisfying than it sounds. Once the renovation is completed, you won’t have to worry about repaying a loan or paying a large credit card bill. The amount you need to save will vary depending on the renovation type and scope of the project. It might be a good idea to start small and tackle less expensive projects first.
Contact Us for Your Home Improvement Needs!
Have you figured out your next home improvement project? Whether you’re looking for a local roofing company or a home addition contractor, Ritco Group, Inc. can provide you with a comprehensive range of services. We can also guarantee superior craftsmanship that will meet or exceed your expectations. With nearly 50 years in the business, you can count on our high level of expertise to deliver quality results.
If you’re eager to start on that new construction, call Ritco Group, Inc. today! Contact us at (931) 381-0175, or fill out our online request form to schedule a consultation. We serve clients in Columbia, Franklin and Brentwood, TN. Talk to us today!