Should I Refinance So I Can Renovate?
Posted by Richard on August 7, 2019
A new roof. New flooring. New heating/cooling systems. These are the kinds of problems that can keep a homeowner up at night. They are big ticket projects that usually require some financing.
Homeowners have several choices to finance crucial projects or even elective remodeling like updating that kitchen.
* Cash-out refinance – Your home is collateral. With good credit and at least 20 percent equity, cash-out refinancing could be a good deal since your renovations could increase home value. In addition, if you can get a lower interest rate, your monthly payment might not rise dramatically.
* Home Equity Loan or Line of Credit (HELOC) – Your home is collateral. An equity loan is a second mortgage and it has a fixed rate. A line of credit may not have a fixed rate and the payments change based on what you have borrowed and current interest rates.
* FHA 203(K) loan – Limited loans are capped at $35,000 and intended for making basic improvements. Funds for improvements are held in escrow and a qualified consultant must oversee the project.
* Fannie Mae HomeStyle Renovation – A government-backed loan that lets borrowers add extra money for improvements at the time of purchase. It also lets homeowners refinance their mortgage for home improvements. Money for improvements goes into an escrow account from which approved contractors are paid.
Is it a good idea to refinance in order to remodel?
For urgent needs, such as a new roof, sometimes homeowners must refinance.
For elective remodeling, the answer mainly depends on the math. You’ll need to take your monthly payment as well as the total payment into consideration, along with the length of time you plan to stay in your home. Your lender will take into consideration debt-to-income ratios, your credit score, and even the work you plan to do.