Home Improvement Loan Refinance
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How To Refinance Home Improvement Loans
Whatever the reason you are looking to refinance your loan, you will want to explore your options. As you explore make sure you compare current total loan costs to the total loan costs of refinancing offers. You will want to evaluate if it makes financial sense to refinance. In some cases, you may be able to lower your monthly payment, but not lower your total loan costs. If you are struggling to make your monthly payment and need to lower it, then you may have to move forward with refinancing. However, in general, the goal of refinancing should be to lower your total loan costs and monthly payment too.
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Learn More About Home Improvement Loan Refinance
Recently, we have seen interest rates hit all time lows, which has encouraged individuals to refinance loans or borrow money. If you are considering refinancing an unsecured home improvement loan, you should start by checking offers to determine if it's worth moving forward or not.
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+Can you refinance a home improvement loan?
Yes, you can refinance a home improvement loan. Depending on the type of home improvement loan you have, the process and options for refinancing may vary. In some cases, it might not make sense to refinance your loan so make sure you do plenty of research before making a decision. Some scenarios where refinancing may make sense include. . .
Your credit score improved since you secured the original loan
Interest rates have significantly dropped
You need to consolidate multiple loans, including a home improvement loan, into one loan
For example, you may have had a flood, forcing you to make necessary repairs during a time when you were low on cash and may have not had the best credit score. Luckily, you were able to get a home improvement loan to make the repairs you needed but now you are stuck paying high interest rates. Since your original loan, your credit is much higher and you feel that you can qualify for a lower rate. This scenario may justify the reason to look for a way to refinance a home improvement loan.
If you have an unsecured home improvement loan, you may be able to refinance it using another unsecured home improvement loan. If you have a secured loan, you may be able to refinance it with a new secured loan. Recently, we have seen interest rates hit all time lows, which has encouraged individuals to refinance loans or borrow money. If you are considering refinancing an unsecured home improvement loan, you should start by checking offers to determine if it's worth moving forward or not.
Should you finance a home renovation?
While paying cash for home renovations may be the cheapest option, it's not always within reach. Financing home renovations is a great way to make your living space more functional without causing financial stress. If you choose to take advantage of financing there are some steps you should take. First, get an estimate to determine how much your renovation will cost. You will want to borrow just enough money, not too little and not too much. Next, learn about the various types of loans available. This includes home improvement loans, home equity loans, home equity line of credit, and more. Once you are familiar with the types of financing available, narrow down which options sound the best for your financial situation and needs. Last, check offers.
Financing has become increasingly popular, thus giving consumers more options to choose from. In addition to a variety of loan types there are a variety of lenders. Lenders have their own set of perks and drawbacks so it's important to learn about the lender in addition to what they can offer. Online lenders can offer competitive home improvement loans. They often offer faster approval and funding times than traditional banks and credit unions. It's recommended to compare online offers to your primary financial institution. In some cases, you may not have the leisure of shopping around for days or weeks before taking out a loan. In rush or emergency circumstances, it may be best to go with an online lender.
Financing your home renovation allows you to pay for your project upfront with borrowed money that you can pay back with interest over time with an easy monthly payment. Also, financing a home renovation or home improvement project may also allow you to afford a project that is a bit larger in scope than you would have previously if you were just paying cash. There are many benefits to financing a home renovation or home improvement project.
What refinance options allow you to pay for home improvements?
In addition to a conventional cash-out refinance through a bank, credit union, or online mortgage lender, there are a few other refinance options available that allow you to pay for home improvements. For example, there are renovation loans through the FHA. Both the Limited FHA 203k and the Standard FHA 203k loan can be used to refinance your current mortgage while providing you with additional funds to be used specifically for home repairs, home improvements, or major renovations. Then there are Fannie Mae and Freddie Mac. Fannie Mae offers the Fannie Mae HomeStyle renovation refinance and Freddie Mac has the Freddie Mac CHOICERenovation loan. Last, if you are a qualified veteran or an active service member, then you may be eligible for the VA renovation refinance loan.
How do you refinance for home improvements?
If you are looking to refinance for home improvements, you first must have at least 15%, but more likely a minimum of 20% equity built up into your home. In addition to the minimum equity requirements, most mortgage lenders are going to review your credit history and your debt-to-income ratio. Many lenders require a minimum credit score of 620 and a debt-to-income ratio no higher than 43%, although some lenders may want to see a debt-to-income ratio below 36%. If you meet all the criteria for obtaining a cash-out refinance, then your next move would be to start exploring your options. You could consider the lender who manages your current mortgage or you could explore new options either at your bank, credit union, government loan program, or through an online lender.
What are the benefits of refinancing for home improvements?
There are many benefits to refinancing your home to get some extra cash for a home renovation or home improvement project. You may be able to get a lower interest rate or more favorable loan terms, improve the value and curb appeal of your home, and if you have any money left over after you complete your home improvement project, you are free to spend it however you would like or save it. Additionally, any interest that you pay on a cash-out refinance is tax-deductible whereas other finance options like a personal home improvement loan or a personal line of credit, have no tax benefit whatsoever.
Lower interest rates/more favorable terms: Many times when you refinance your mortgage, you may be able to find a new mortgage through a different lender that may be able to offer you a lower interest rate, a lower monthly payment, or better terms and a new repayment plan that is better suited for your financial situation.
Improve the value and curb appeal of your home: Home renovations and home improvement projects are some of the smartest things that you can spend money on. There are many home improvement projects that actually increase the value of your home whether it is renovating an outdated kitchen or putting in all-new energy-efficient appliances and a new HVAC unit. Not all home improvement projects can guarantee a 100% return on your investment, however, renovations and upgrades to an existing home can increase the value of your home and make it more appealing to potential buyers when or if you are ready to sell.
Leftover funds: If you take on a cash-out refinance to pay for a home improvement project and you have leftover funds once the project is complete, you do not need to return them to the lender and there are no restrictions on how you use the money. You could use the leftover funds to pay for a new entertainment center, pay off some credit cards, pay a medical or dental bill, or simply just hold on to the money and use it to cover day-to-day expenses like groceries and gas for your vehicle.
What are the disadvantages of refinancing for home improvements?
Although there are many advantages of refinancing your home to pay for home renovations and improvements, there are also a few disadvantages that need to be considered as well.
Lengthy process. The process to obtain a cash-out refinance can take much longer than obtaining a personal home improvement loan. The process to close on a refinance can take weeks or even a couple of months to finalize. If you are in need of financing right away to get your home improvement project started, then you may want to explore other financing options that have faster processing and funding times.
Closing costs. Another main disadvantage to refinancing is that you may have to pay closing costs again. Closing costs generally are for between 2% and 5% of the total amount of the new mortgage. This could potentially be thousands of dollars depending on the size of your cash-out refinance.
Risk losing your home. Any time you use financing options that involve your home and its equity, you are essentially putting your home at risk. If for any reason you begin to fall behind on your mortgage payments and eventually you default, the lender could potentially seize your home and sell it to recover the remaining loan balance. Additionally, a home foreclosure could stay on your credit report for up to 7-years making obtaining new credit in the future extremely difficult.
What is the difference between a cash-out refinance and a mortgage refinance?
The main difference between a cash-out refinance and a mortgage refinance is that a cash-out refinance replaces a current mortgage with a new larger mortgage whereas a mortgage refinance is typically only for the amount needed to replace the existing mortgage.
How do you qualify for a cash-out refinance?
If you are wondering how you can qualify for a cash-out refinance, then the first thing you may want to do is obtain a free copy of your credit report. Once you have your credit report, take a look at what your credit score is. If you do not have a credit score that is at least above 620, then you may find it quite difficult to qualify for a cash-out refinance. If this is your situation, then you may want to take a few months to pay down debt, take care of any delinquent accounts, and continue to make your current debt payments on time to help improve your credit score to above that 620 threshold. If you already have a credit score above 620, then the next step is to make sure your debt-to-income ratio is below 43%. If not, then you may want to consider paying off some current debts or obtaining an additional source of income. The last criteria that you should make sure you can meet before applying for a cash-out refinance is that you want to make sure you have at least 15% or 20% equity in your home. The FHA may only require 15% equity for an FHA refinance option, however, many conventional lenders may want to see 20% equity or higher before considering someone for a cash-out refinance option. If you meet all three of these requirements, then you should not have much trouble finding a mortgage lender who is willing to work with you to help you obtain a cash-out refinance on your current home.
What are other ways to pay for home improvements?
When it comes to financing home improvements, you may be overwhelmed by the amount of options available. It's important to compare the pros and cons of each option and evaluate your financial situation. If it's feasible, you may want to consider paying cash before financing home improvements. While financing may offer convenient monthly payments, there are usually fees and interest charges involved. If you choose to finance home improvements, make sure you find a loan with an affordable monthly payment and the lowest total loan costs. What is considered a good deal or low borrowing costs may vary depending on your personal financial situation and needs. To determine what is a good deal or a fair deal, check and compare offers that are based on your information and credit score. Options for financing or paying for home improvements include:
Cash
Home improvement loan
Home equity loan
Home equity line of credit
Personal line of credit
Credit cards
Government loans (HUD, Fannie Mae, Freddie Mac, etc.)
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