The first step in taking your home remodel vision to a reality is ensuring you have a budget that fits your needs. Working with a set budget alongside your remodel partner is crucial in getting the end result you want without breaking the bank.
While it’s great if you can cover your remodel costs out of pocket, it’s not necessarily the only way to finance your new basement, kitchen, or master bath. With home improvement loans, you can cover the cost of your design and construction.
Here are some tips to get you thinking about loan options for your remodel.
Top 6 Types of Home Remodel Loans
According to The Mortgage Reports, there are six major ways to finance your remodel: credit cards, HELOC, personal loan, home equity loan, FHA 203(k) rehab loan, and cash-out refinance.
A quick overview of these options:
- Credit cards: Using a credit card is one of the most straightforward and quick ways to finance your project. However, because remodels are quite high-cost, you’ll need to either ensure you’re approved for a high credit limit or use multiple credit cards to cover the price. You should also look into how quickly you’ll need to pay down that charge without negatively impacting your credit.
- HELOC: A HELOC is similar to a home equity loan, but functions similarly to a credit card. HELOCs are likely the better choice over a home equity loan if you have multiple, smaller projects or will be financing your home updates over time. Make sure to note your current income, credit score, and home value as this will affect your HELOC’s spending limit.
- Personal loan: Because personal loans are unsecured, your home won’t be used as collateral. Personal loans can also be obtained quicker than with HELOCs. Credit also impacts whether or not you’ll get an affordable rate for this loan. However, it’s worth noting that the payback period is typically much shorter than other options.
- Home equity loan: This loan uses your current home equity to borrow against what you’ve already built up in your home. Your loan amount is found by subtracting your mortgage’s current outstanding balance from the total home value. With that being said, this loan is great if you have a lot of equity already built up. However, if you still owe money on your home’s original loan, this can result in two mortgage payments.
- FHA 203(l) rehab loan: FHA 203(k) rehab loans allow you to combine your mortgage and remodel costs into one loan and payment. These loans have low rates, lower down payments, and allow a lower credit score to qualify. However, this loan is better for larger projects –FHA 203(k)’s are often used in fixer-upper homes.
- Cash-out refinance: Cash-out involves refinancing your mortgage loan to have a larger balance than what is owed. Once you pay off the existing mortgage, you’re able to keep any remaining balance. Because the funds that come from cash-out refinancing are from your home equity, you can spend that extra cash on anything — including a home remodel!
What Home Improvement Loan is Best for My Project?
The type of loan you choose truly depends on where you’re at with your credit score, income, current home equity, as well as the scope and estimated cost of your project. According to US News, a short-term personal loan is likely best for minor projects and updates. For higher-cost projects like remodeling, additions, and roofing, you’ll likely want to use a home equity loan to finance your project. Under that home equity loan umbrella, the cash-out refinance or HELOC are also popular financing options. Make sure to look into each option and investigate interest rates, APR, limitations, and other fees associated with taking out a home equity loan.
Choosing the Right Home Improvement Lender
After choosing what home improvement loan is right for you, the next step is choosing the right lender that matches your needs. According to US News, there are four major areas to consider when comparing lenders: customer service, APR, eligibility requirements, and loan amounts.
You want to make sure that you are eligible for the loan before wasting time and money applying for it. When researching, look up the minimum qualifications and see if you get can get prequalified. You should also look at the maximum and minimum loan amount that the lender offers to see if that range fits your needs. Lastly, take a look into that company’s customer service quality and reputation!
Choose a Remodel Partner that Works With Your Budget
Beyond the loan, working with a remodel partner that works with your budget is essential to crafting a realistic design that fits the bill. When vetting out remodel companies at design consultations, ask:
- Do you guarantee the price that’s quoted for me?
- What all does your final price cost? Does it cover materials and labor?
- What other hidden costs should I be aware of during this project?
- What happens if you come across an unforeseen cost during construction? Do you cover it?
- How long will my warranty last post-construction?
- When, in your process, do you collect a deposit or first payment?
With FBC Remodel, we present you with one guaranteed price prior to construction. We also ensure you love your design — you approve the look, feel, and layout of your design before you spend a dime. If extra costs pop up that we don’t predict prior to the quote, we handle the cost on our end!
We’d love to help you get your dream design within your budget. Get in touch with our team today to book a design consultation, and follow the button below to learn more about our process!