There are many options available in terms of financing when you look into choosing the right loan for your building project. There are even loans available to those with poor credit, though the interest rates may be a little bit higher. Obtaining a loan for home improvement can be a very good investment because if you are planning on selling your home, this can add a lot of value to the selling price. And if you\’re not planning on selling, well the remodel can give you personally peace of mind. Being comfortable in your home is important, so you want to make sure that you choose the right kind of loan for remodeling your home.
Before you decide on which loan to get, there are a few things that you will need to be aware of. Who will be doing the remodeling? Will it be you, or will you hire someone else to do the work? The answer to this question will point you in the direction and amount of your loan. If you decide on doing the work yourself then the loan amount may be lower than if you decide to hire a contractor or architect.
A few other questions you might want to ask yourself are:
- Will there be any chances of changes to your finances within the next few years?
You don\’t want to take out a loan that over exceeds your income and then not be able to repay it.
- How long are you planning to stay in the home?
If you’re not planning to stay in the new home for too long you may not want to do an extensive remodeling. This will of course lower the loan amount compared to if you’re going to be doing a huge remodeling that will cost more.
- Do you have enough money to pay a higher mortgage?
Always bear in mind that there is a likelihood that with the remodel your mortgage payment will change.
Comparing loan terms and lenders
As you find out more information about each lending institution, make a list of information for each of them; company\’s name, interest rate charges; if there is a minimum payment required, closing costs, and is prepayment allowed. Find out as much as you can and gather as much information possible. Ask question if there are any queries. You may want to talk to the lenders on the same day as interest rates tend to fluctuate.
The two most popular options when it comes to home remodeling are:
1. Home equity loans – has fixed or adjustable rate and is secured by the equity of the home. They are for big home improvement project where you will need to hire an architect or contractor, where the site needs to be prepared, or major structural modifications will be made.
It is important that you know and understand the conditions for paying back the loan as they can have long term effects on your financial plans. If you fail to repay the balance plus interest, you can get into credit trouble and lose your home.
2. Home equity line of credit – loans that allow you to borrow money as you go, rather than taking it all at once. They are easier to apply for than the standard second mortgage and are very similar to credit cards in that at the time of closing you are assigned a specified credit limit.