5 Popular Methods for Financing Home Remodeling and More
Once you own your home, you'll likely start noticing various things that could use some repairs or remodels. However, that can take a significant amount of money - especially when you want to do things the right way.
Luckily, homeowners have several different methods of financing their home remodeling projects.
There are a number of options, but the following five are among the most popular.
Be sure to consider each one carefully so you can find the one that is right for your specific needs.
Revolving Home Equity Line Of Credit - This is perhaps the most popular option available, and certainly one of the best. It functions much like a traditional second mortgage, except that instead of having a large sum of cash you're given a line of credit with a limit of that amount. You can use the credit line just like you would a credit card or similar account. This means that you have the money you need, but that you only pay interest on the amount that you've used at any given time. In short, it can save you a tremendous amount of money.
Lump Sum 2nd Mortgage - A lump sum second mortgage is just what it sounds like. You'll take out a second mortgage based on the value of your home and what you owe on the first mortgage, and can then use the cash however you want. With these loans, the entire sum of the loan is placed into your account for use however you see fit. However, this means that unlike a line of credit you'll be paying interest on the full amount instead of just what you've used.
1st Mortgage Refinancing For Cash Out - This type of loan is just what it sounds like - you'll refinance your home but structure the loan in such a way that you're left over with a bit of cash for use as you see fit. While most 1st mortgage refinances are done to lessen monthly payments and get a better rate, these will often lead to the same type of monthly payments since you're taking out a loan for more than what you already owe.
Construction Loan - A basic, standard construction loan is treated largely like any other major loan in that they are considered a second mortgage, will have a fixed rate, and will allow you to borrow an amount based on your overall loan to value rating. However, unlike other options you will only be able to use the funds specifically for construction and remodeling - nothing else.
203K Loan - These loans are designed specifically for buying and renovating a home in one process. Instead of a traditional mortgage, you'll take out this loan. Once you purchase the home, the remaining renovation funds are held in escrow. They'll be withdrawn as needed to pay for pre-determined renovation work. The biggest drawback is the relative lack of flexibility - you have to use approved contractors and only approved work can be done on the home
Please remember that rates and home improvement programs are subject to change and may not be available in all states.
Smart Lending is a marketing company and does not make home remodeling loans or guarantee rate locks.