Home remodels can get quite expensive, which means that you’ll need solid financing options to help. This might include government financing programs, home equity loans, etc. However, getting financing for these remodeling projects requires that you hold good credit, most especially, as lenders will want some reassurance of your ability to repay the loans.
To prove that you can pay lenders, you will need to first check out and review your credit reports through the three top credit bureaus – Equifax, Experian, and TransUnion. Aside from getting the assurance that you have good credit, once you know your scores, you’ll also be able to get a good idea of what interest rates and line of credit amounts can be offered to you.
Many homeowners take out a Home Equity Loan, aka a Second Mortgage, to pay for their home remodel. The problem with this, however, is that equity loans are offered at interest rates that are significantly higher than your first home mortgage.
The better option would be to obtain a Home Equity Line of Credit, aka a HELOC. In this case, the lender essentially provides you with a “credit card” by setting a specific limit you can maintain.
The federal government also offers options for those looking for a home loan. In terms of home remodeling, there are two main government-backed programs for this – Fannie Mae’s HomeStyle Renovation Mortgage and the Federal Housing Administration’s FHA 203(k) Rehab Mortgage Insurance.
Fannie Mae’s HomeStyle Renovation Mortgage program offers loans for general home remodeling purposes.
On the other hand, the FHA 203(k) Loan allows homeowners to finance or refinance their homes so that they have the funds for their home rehabilitation needs. These specific loans can have adjustable or long-term fixed rates.
Alternatively, it’s possible to transform your home remodeling loan into an FHA Refinancing option. This, however, will depend on the value and equity of your home.
Charging your remodel on credit cards can be an option too, of course, but keep in mind that interest rates for this are incredibly high. Therefore, you should only consider using this method to pay for the remodel if you aren’t particularly subject to high-interest payments. For example, you may have opened a new credit account and are offered a zero percent rate for the first year. You might also have plans to pay the full balance before the first interest charge.