The safest financial option for paying for your home renovation is to save an amount of money for your project. Loan for home remodeling or repair. Home Equity Line of Credit (HELOC). You can do a lot of value-added home renovation projects for a relatively small amount of money.
For example, painting is a cheap way to improve the look of your home. Or you can place a new floor in a small bathroom to modernize it. These upgrades could cost just a couple of thousand dollars. That might sound a little scary, but using your home as collateral gives you access to lower interest rates.
In addition, the interest you pay on a second mortgage generally qualifies for the mortgage interest tax deduction, as does the interest paid on a regular 15- or 30-year mortgage. Refinancing with cash out can be a great option for DIYers. Renovation loans (which we'll cover below) require you to pay a contractor at least some of the renovation costs. But with a cash out refinance, the bank only hands you a big check when you close.
You can do whatever you want with that, whether it's paying a professional to improve your bathroom or investing some money in sweat to do it yourself. HomeStyle and ChoiceRenewation are cheaper than the FHA 203 (k) loan. But they have an important caveat. You can only use up to 50% of the future value of the home for renovations.
The 203 (k) program is administered by the FHA, which means it has lower credit requirements than conventional loans. However, you also have a monthly mortgage insurance premium (MIP) that is maintained throughout the life of the loan. The only way to avoid paying the monthly MIP on an FHA loan is to refinance it later. Normal or complete 203 (k) is more complicated.
However, it can cover any type of work, including structural renovations, and you can borrow up to 110% of the future appraised value of your home. At a full 203 (k), the limit on the total mortgage amount varies by location. You can find out here how much you could borrow with the 203 (k) loan. However, secondary mortgages, refinancing with cash out, and renovation loans are likely to be your three main financing options for expensive renovations.
And finally, if quick funding is your top priority, you might want to consider applying for a personal loan. Unless you've accumulated significant savings, five-figure home renovations will mean taking out some form of loan. Fortunately, there's no shortage of options to borrow money to make your dream project a reality. From construction loans to personal loans, refinancing with cash out, a HELOC, 401 (k) loans, and even credit cards, there's almost certainly a way for a motivated homeowner to get financing for their project.
Counties and other municipalities will subsidize some or all of the interest on their remodeling loan to help preserve the local housing stock.
