Remodeling may become a necessity for your home because it’s falling apart. If not for that reason, you may be contemplating remodeling because you want to feature a new design scheme or make your home more efficient. Regardless of your reason, you’ll have to figure out the financial aspect of that undertaking. Financing a house remodel won’t be easy, but there are ways to get it done. Use the tips in this article to secure the funding needed for that project.
1. Start Saving Money as Soon as Possible
It’s never too early to start thinking about potential home improvements. Many issues that threaten homes don’t present obvious symptoms immediately. They may fester in the background and lull you into a fall sense of security. When they do emerge, you may be caught completely off guard.
You don’t want to be in a position where you’re scrambling for ways to pay for home remodeling. Ideally, you should plan for that years in advance so you’ll have more options available when it becomes obvious that the repairs and improvements cannot be delayed any further. Saving money early on can put you in that advantageous position.
Setting aside money is especially important if the seller disclosed issues about the property during the negotiations. Moving forward with the purchase may still make sense if the aforementioned issues are not expected to cause immediate issues. Still, you should start thinking about financing a house remodel because those problems will affect your home sooner rather than later.
Speak to a wealth planning specialist if you’re struggling to come up with a sustainable savings plan. They can highlight issues in the way you handle your finances that could free up money for your remodeling fund. They can also offer advice about growing your wealth so you’ll have more resources available down the line.
2. Determine the Necessary Upgrades and Repairs
Saving money for financing a house remodel makes a lot of sense, but you shouldn’t subject yourself to financial hardship. Don’t tighten your belt any longer than you need to by understanding exactly how much your upgrades and repairs will cost. Work with experts to ensure you get accurate assessments of those essential expenses.
Talk to a local plumber and ask them to inspect your pipes and fixtures. Note any issues they bring up and account for them in your remodeling plans. You should also speak to other experts, such as electricians and HVAC specialists, to better understand your home’s current state.
Once you’ve accounted for the critical repairs and upgrades, you can start planning for your preferred improvements. Consider the elements you’ve always wanted to see in your home and integrate them into your plans. Contact a remodeling contractor and ask them how much you’ll have to pay for those upgrades. Figure out early on how much your remodeling project will cost so you can plan accordingly.
3. Interview Remodeling Contractors in Your Area
Remodeling is a major home improvement project that should only be left to the professionals. You’ll have to sign a deal with a contractor eventually. Identifying who that contractor is as early as possible should be your priority. Interview qualified candidates in your area so you can find the right contractor.
You can pose different questions to your candidates during the interview process. However, we’re going to focus on money-related questions in this section because we’re talking about financing a house remodel. Start by asking about their rate and how long they expect your project to take. Those bits of information should give you a great idea of how much your labor expenses will ultimately cost.
During the interview, you should also ask about additional costs that may pop up during the project. Ask about their overtime rates if they have to do extra work. You should also confirm if the contractor wants to reserve the right to change their rates based on how the project unfolds. The interview is also the right time to ask if cleanup is included in their fees or if you need to hire a different waste solution provider.
Remember to discuss permits during the interview because they may be required for some of your upgrades. The custom construction company may offer to secure the building permits in exchange for an additional fee. Confirm how the permits will be secured beforehand so you can also factor that into your cost calculations.
4. Apply for an FHA Title 1 Loan
You have a few options if you’re trying to secure financing for a house remodel. We’ll dive more into some of those options later in this article, but we want to discuss an often-overlooked funding source first. The overlooked option in question is the Title 1 loan offered by the Federal Housing Administration.
According to the U.S. Department of Housing and Urban Development, FHA Title 1 loans are specifically designed “to finance the light or moderate rehabilitation of properties, as well as the construction of nonresidential buildings on the property.” In other words, these are federally backed loans meant to give homeowners an additional source of funding if they need to pay for remodeling. They are also issued through specific lenders approved by the Federal Housing Administration.
We want to draw attention to FHA Title 1 loans because they feature certain qualities that could prove helpful to many homeowners out there. First off, the requirements for these loans are easy to clear. You don’t need a high credit score or even equity in your home to qualify for a Title 1 loan. Title 1 loans also come with fixed interest rates, so you don’t have to worry about changes in the real estate market affecting your financial obligations.
The only real downside to Title 1 loans is that they can only offer funding for necessary repairs and upgrades. There’s a chance you may not be able to use it for natural quartzite or granite countertops. At the very least, you may have to justify those upgrades to your lender before using this loan for financing a house remodel.
5. Fund Your Upgrades With a Personal Home Improvement Loan
After reviewing your application, the lender might deny it, stating the scope of your project isn’t covered by a Title 1 loan. They may not deem your upgrades necessary and withhold the loan based on that. It’s a frustrating position to be in, but you cannot rule it out. If that does happen to you, remember that you can still apply for a personal home improvement loan.
Financing a house remodel with a personal loan is possible even if you have no equity. You aren’t even required to put your home up as collateral. In this case, the lender bases their decision to offer a home improvement loan on your financial background. Expect them to examine your income, credit score, and other similar factors.
Why should you be interested in a personal home improvement loan? It’s worth considering because it could be your best option if you’re looking to complete a mid-range upgrade. Use the funds from this loan to pay for the services of a bathroom remodeling company and the necessary materials. They offer more flexibility than Title 1 loans, which can make a huge difference for your remodeling plans.
6. Consider Your Larger Loan Options
Title 1 loans should suffice for essential repairs and upgrades. Personal home improvement loans can pay for better windows or a new fixture from the fireplace store. But what if you’re planning for a larger home remodel? What are your loan options for those expensive projects?
Available options at that point include a home equity line of credit and a second mortgage. Both options have pros and cons. Let’s look at both options to determine which one should be used for financing a house remodel.
A home equity line of credit, also known as a HELOC, is a loan you can obtain from any entity that offers mortgages. After opening the line of credit, you also commence a draw period. You can continue borrowing from your line of credit as long as the draw period is active.
You’re putting up your home as collateral when you take out a HELOC, which allows you to secure a lot of money. The interest you pay on a HELOC may also be tax-deductible. A HELOC may also have a variable or fixed interest rate.
Similar to a HELOC, you’re also using your home as collateral to get a second mortgage. Second mortgages can be difficult to obtain because of the credit score requirements. Even so, they are worth pursuing because of their high borrowing limits. Interest payments may also be tax-deductible if you secure funding from a second mortgage.
7. Speak to Multiple Lenders
Shopping around is important, not just when looking for a contractor. You should also get to know all your options while looking for a lender. Schedule appointments with multiple lenders and discuss the financing you hope to secure. Make sure you go to the appointments with all the documents ready so the lenders can present you with their best loan offers.
Scrutinize each loan offer’s interest rate and relevant terms. Even seemingly minor differences among the different offers could significantly affect your finances. Watch out for terms like balloon payments and pre-payment penalties because they could impose greater financial obligations on you.
Negotiating is also a must while speaking to the party capable of financing a house remodel. Most lenders are willing to discuss interest rates and certain closing costs if doing so will get them closer to a deal. Open up those conversations to snag the best loan offer available.
8. Choose the Type of Interest Rate for Your Loan
While discussing loan offers with potential lenders, you may be asked about the type of interest rate you prefer. Would you rather take on a loan with a fixed or variable interest rate? There is no always correct option between the two. To determine which interest rate works best for your loan, you have to account for your financial situation and market factors.
Generally speaking, using a loan with a fixed rate for financing a house remodel is a good idea if your finances are stable and the market currently offers friendly interest rates. You can be confident in your ability to pay your loan on time because you already know what to expect. Sudden changes in the market won’t affect your ability to make ends meet.
According to Investopedia, a borrower is more likely to save money on interest payments if they choose to take out a loan with a variable interest rate. The variable interest could lighten the burden of your monthly payments if the market is in your favor. Of course, it could also move in the opposite direction and impose heftier payments.
Try to get as much information as you can before making a final decision on your interest rate. Speak to people who know the markets and request a recommendation. The feedback they provide can help you identify the better loan option.
9. Reserve Money for Your Temporary Accommodations
Lastly, we also want to remind homeowners to reserve money for temporary accommodations. It would be great if you could temporarily stay with a relative or friend while the contractors work on your home, but that’s not an option for everyone. Even if someone you know has a spare room, they may be unable to accommodate you for the entire remodeling project.
Keep that in mind while discussing financing a house remodel with your family. Ask them about the accommodations they would be comfortable with and check how much they would cost. You can include those expenses in your loan application if you cannot pay for them out of pocket.
Hashing out your remodeling plan with your contractor is even more important because of this. You have to know how long you’ll be out of your home to reserve the requisite amount of money. Otherwise, you could end up in a tough spot financially.
Securing funding for a house remodel can be tricky, but it should be manageable if you take a proactive approach. Carefully examining all your options is also critical to your fund-gathering efforts. Visit our website today and pick up more financing-related tips!