HomeHome ImprovementHome Improvement Loan Vs Refinance
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Home Improvement Loan Vs Refinance

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Refinancing A Home vs Getting A Loan

Refinancing your home can be extremely beneficial under the right circumstances. After a renovation project can be the perfect time for homeowners to refinance their property’s mortgage. A home renovation can impact your home’s equity and property value.

Therefore, if you have any need for cash to fund any major expenses, after a renovation can be the perfect time to obtain a cash-out refinance. It may also be the right time to refinance and get your private mortgage insurance (or PMI) removed if you have been paying for it. PMI can be removed when the loan balance is less than 80% of the home’s value.

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Learn More About Home Improvement Loan Vs Refinance

It is important to note that some lenders and mortgage programs may institute a short waiting period after major renovations before you can tap into your home's equity via a cash-out refi

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Is it better to refinance before or after remodel?

The question of when to refinance is one asked by many homeowners at various stages of their property ownership journey. A properly timed refinance can save you thousands of dollars on interest, change your monthly payment, and even help you pay off your mortgage sooner. In addition, refinancing with some specific types of loans can even help you fund a home remodel.
For this reason, many homeowners choose to refinance before their remodel so they can obtain the proper financing to pay for their home improvement projects. Options include government-backed renovation loans like the FHA 203(k) rehab loan, or another type of loan known as a cash-out refinance. A cash-out refinance uses the equity in your home to give you quick access to funds.
On the other hand, it may be beneficial to wait and obtain a refinanced mortgage after you have completed your property remodel. Any home improvements that you complete on your property should increase your property value, thereby increasing the amount of equity that you hold in your home. For example, if you are hoping to obtain a cash-out refinance or other equity-based form of financing to pay for major expenses such as a child's education, it is in your best interest to complete your home renovation project first in order to tap into this increase in equity.
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Can I refinance my home to build an addition?

One way you can fund an addition to your home is to obtain financing through a refinance to your home's mortgage. You can obtain a government-backed rehab loan such as an FHA 203(k) mortgage or use another form of financing known as a cash-out refinance which uses your home's equity to grant you cash. Either of these options is a great way to finance your home addition without the need to take on any additional debts like a personal loan, home equity loan, or credit card. By undergoing a refinance, you will continue to repay your property's debts as one monthly payment with one interest rate. You may also be able to take advantage of lower interest rates if your credit score has improved since your original home loan. Alternatively, if a secured loan option or refinance does not pencil or you do not qualify, you can use an unsecured home improvement loan.

Why do you refinance after renovation?

Refinancing your home can be extremely beneficial under the right circumstances. After a renovation project can be the perfect time for homeowners to refinance their property's mortgage. A home renovation can impact your home's equity and property value.
Therefore, if you have any need for cash to fund any major expenses, after a renovation can be the perfect time to obtain a cash-out refinance. It may also be the right time to refinance and get your private mortgage insurance (or PMI) removed if you have been paying for it. PMI can be removed when the loan balance is less than 80% of the home's value.
In addition, along with the increase in property value comes a decrease in your loan-to-value (or LTV). The lower this ratio is, the better loan terms you can expect to receive. Therefore, it may make sense to wait and obtain a refinance after a property renovation even if you won't be tapping into your home's equity for cash.
Just be sure to keep an eye on interest rates, loan terms, and any applicable closing costs to see if completing a refinance after your home renovation is a good idea for you or not.

Should I remodel my bathroom before refinancing?

Any home improvements that you complete on your property should increase your property value, thereby increasing the amount of equity that you hold in your home.
Remodeling a bathroom (or a kitchen) is one of the most popular home improvement projects and one of the best ways to quickly increase your home's equity and property value.
If the goal of your refinance is to save money on your interest rates, you should be able to obtain your refinance at any time that rates are low or you find a good deal. However, if you want to tap into your home's equity through a cash-out refinance, it may be beneficial to wait until after your bathroom remodel is complete for the reasons listed above.

Can you add renovation costs to conventional mortgages?

Adding renovation costs into your home's mortgage can be a very convenient way of funding your home improvement projects with one monthly payment. There are a number of benefits to renovation mortgages, which makes this type of financing very popular. Therefore, many homeowners want to know if their renovation costs can be added to a conventional mortgage.
You can only add renovation costs into your mortgage when the lender or mortgage program allows it. For example, the government-backed FHA 203(k) rehab loan allows borrowers to roll up the costs of their renovations into the mortgage resulting in one single monthly payment.
Unfortunately, renovation costs cannot be added to a conventional mortgage, but homeowners can still pursue other financing options like a cash-out refinance or a home equity loan in order to pay for their home's renovation costs. You can always double check with your lender to see what type of financing options are available to you and your own unique financial situation.

How do you know how much equity you have in your home?

Home equity is simply the value of a homeowner's stake in their home. It's calculated by taking a property's current market value and subtracting any liens (like a mortgage) that are attached to the property. Therefore, anything that increases your home's value increases your equity.
To calculate the equity you have in your home, you will first need to know your home's value.
You can determine your property's current value by obtaining an official appraisal or by looking at "comps" (comparatively priced homes) in your neighborhood.
Once you know the current value of your home, you must then subtract any money owed on your home to determine the total amount of equity. For example, if your home is worth $100,000 and you owe $80,000, then the amount of equity you have in your home is $20,000.
As your property value increases, your equity increases. In addition, as you pay off the amount owed on your home, your equity also increases.

Do I need to tell the mortgage company about renovations?

When you are undergoing a home improvement project, there is quite a bit of paperwork and red tape that typically comes along with the work. Homeowners are expected to comply with local building codes and ordinances as well as go through the process to request the necessary permits and undergo any required inspections. Without this compliance, homeowners may have trouble reselling their home and may even have to redo the work later on.
In many cases, lenders may include a "review clause" in a property's mortgage at the time of purchase. This clause protects the lender in the event they must repossess the home through foreclosure. Remember, your property is technically their collateral and any renovations done to your home affect its value. In fact, a bad job can even lower your home's value.
Minor repairs and upgrades shouldn't require approval, but major work on your home typically will. So when in doubt, check with your mortgage company (and your homeowner's insurance provider) to see if they require notification or approval before you begin your renovations.
Lenders and insurance companies just want to see that you are complying with all local building codes and undergoing the proper inspections when dealing with the property.

Are upgrades included in the mortgage?

With many different types of financing available, there are ways to include the cost of your home upgrades in your mortgage. One of the most popular loan programs for rolling home improvement expenses into your mortgage is the FHA 203(k) rehab loan. Other popular government-backed options include the Fannie Mae HomeStyle Renovation loan and the Freddie Mac CHOICERenovation® mortgage.
These loans can be obtained at the time of purchase or through completing a refinance.
Any of these loan programs are a great option for homeowners looking to roll up the costs of their upgrades into their mortgage, successfully avoiding a separate loan payment and monthly interest payment. Alternatively, homeowners can use personal loans, credit cards, in-house financing and equity-based options like HELOCs for their home improvement expenses.

How do you build home equity with home improvements?

Home equity is simply the value of a homeowner's stake in their home. It is calculated by taking a property's current market value and subtracting any liens (like a mortgage) that are attached to the property. Therefore, anything that increases your home's value increases your equity.
Anytime you upgrade or make improvements to your home, it has the potential to increase your home equity by increasing your property value. Some of the biggest ticket items that can increase your home equity include kitchen and bath upgrades as well as home additions.
Other popular home improvement projects include replacing doors and windows, finishing a basement, adding a deck or porch, replacing roofing and siding, completing plumbing or electrical upgrades, and replacing old worn out flooring.

Does unfinished projects affect appraisal?

The condition of your home is an important part of determining its property value. Unfinished or poorly done construction projects can negatively affect a home's appraisal. In addition, projects that are done without the proper permits and inspections can also drastically lower property value – and even make your home more difficult to sell.
Depending on the reason for obtaining the appraisal, it is probably going to be in your best interest to complete unfinished home improvement projects before undergoing an appraisal.
If you are going to be placing your home on the market, you will definitely want to finish your home renovations in order to get the best price for your home.

Should I refinance after finishing the basement?

Undergoing your property's refinance at the right time is crucial to save the most money and reap the most benefits from your financial decision. If you are simply trying to get the best deal on a new mortgage, keep an eye on interest rates and refinance when rates are the lowest. It should not matter whether or not you have completed your basement remodeling project or not. On the other hand, if you have a need to benefit from an increase in equity, it can be beneficial to wait until after your basement is refinished so you can tap into that increased property value.

Should I finish my basement before refinancing?

The answer as to whether or not you should finish your basement before refinancing is a personal one. For example, you can benefit from waiting until after your project is complete if you want to access the most cash using a cash-out refinance. On the other hand, if you want to use funds from a refinanced mortgage (like an FHA 203(k) rehab loan) then you will need to obtain the new property mortgage before you begin your home improvement project. Using a home renovation loan to complete your home improvements carries many benefits since you are not obtaining a second loan on top of your initial one and will only be paying one monthly payment without shelling out extra cash each month for principal + interest on another loan.

Can you refinance in the same year?

A refinance can be a great way to save money on your monthly interest payments, change the loan term of your mortgage to one that is more beneficial to you, or even obtain cash for completing home renovations and financing other major life expenses.
In general, homeowners can refinance at any time period during their home's mortgage and can even do so multiple times over the lifetime of their loan. However, some lenders and mortgage programs may institute a short waiting period after the purchase of your property or after major renovations have been completed before you can refinance.
For example, Fannie Mae typically requires a minimum of 6 months between a home's purchase and when the borrower can apply for a cash-out refinance.

How much should you spend on new home upgrades?

According to HomeAdvisor, the average price range to remodel or renovate an entire house is from $17,959 – $76,944. These expenses will vary depending on the work that is being done to your home and the area that your property is located in.
With personal loan limits as high as $100,000 a home improvement loan is one of the most popular ways to finance this type of project. Many homeowners also choose to utilize home renovation mortgages like the FHA 203(k) rehab loan to cover the cost of a home upgrade or remodel when they first purchase a home.
While there are many ways to finance your home improvement projects over a longer period of time, you should only spend on new home upgrades that you can comfortably afford to repay. This is especially true if you obtain equity-based financing that places your home's ownership on the line. You do not want to run the risk of foreclosure simply to pay for a new pool that you cannot afford.

What upgrades are worth it in a new home?

Any upgrade or improvement to your home can increase your equity by increasing your property value, making these upgrades potentially well worth it. You will need to evaluate your own personal financial situation as well as your family's long- and short-term financial goals in order to determine what upgrades are worth it for your new home.
The most popular upgrades that benefit homeowners the most include kitchen and bath remodels, room additions, porch additions, and other home improvement projects including replacing doors and windows, finishing a basement, adding a deck or porch, replacing roofing and siding, completing plumbing or electrical upgrades, and replacing old worn out flooring.

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