November 2nd, 2018 8:39 PM by Chris Licensed Mortgage Loan Originator Caggiano
Many Loan Options Available
Home Improvements Turn Average Homes into Dreams Come
CITY, ST – If you’re thinking
about taking out a home improvement loan, there are several options to
consider. First and foremost, your mortgage consultant needs to know why you
want a home improvement loan. Here are some factors to take into consideration.
How long have you been in the home?
Will the improvements increase the property value?
Are you making improvements to increase energy
Will improvements be made in one fell swoop, or in
What is the current outstanding balance on your
What is the appraised value of the home?
How much will the improvements cost?
What improvements will be tax deductible?
Do you have other revolving debt that you would like
to pay off at the same time?
Are you making improvements because you plan to sell
The New Tract Home Blues
Buyers of newly-built homes are
often tapped out after making the initial down payment and closing costs, including
upgrades to amenities and the inevitable need for new furniture. Shortly
thereafter, they realize they’d like to make additional improvements to really
have the home of their dreams.
If you’re planning on putting
down roots (pardon the pun), landscaping may be in order. The developer may
have been kind enough to make the front yard a perky green, but if the back
yard is a disturbing brown color sparse with weeds, you may be entertaining the
vision of a pool or deck.
The Major Overhaul
If you have built up equity
in your home and are geared up for some major renovation, the Home Equity Line
of Credit (HELOC) is probably your best bet. This adjustable loan allows you to
use your equity as a line of credit, so if you have improvements that are
phased in over time you can simply write a check when you need to pay a bill.
It’s like a having a credit
card with a much lower financing rate. In fact, the HELOC can be used for any
reason at all – even paying off that credit card debt. In most cases, this
action turns that revolving debt payment into a tax deductible payment with a
lower interest rate. The HELOC is generally a 2nd Trust Deed, unless
it is used to pay off and replace the 1st Trust Deed.
A construction loan is an alternative
to the HELOC for borrowers who don’t want to use or don’t have equity, and this
type of financing can be used for
construction on an existing dwelling. The lender will ask a lot more questions
about what the borrower wants to do with the money, and the home owner will
need architectural designs, permits and a licensed general contractor on board.
Construction loans are
short-term loans that usually require interest-only payments until completion
of construction, but the balance is due when construction is done. Most often,
that is managed up front by setting up construction-to-perm financing. In this
scenario, the loan is automatically rolled over into permanent financing at a fixed
rate when construction is complete, and a rate-lock agreement can be purchased
to carry the borrower through that period of construction.
Another option – depending on
the value of your home and local loan amount limitations – is the FHA 203(k)
Program. This financing is designed for the purchase or refinance and
rehabilitation of properties that meet FHA guidelines. This is worth looking
into if you need to bring a property up to compliance standards, finance
eligible energy efficient improvements, or turn a single-family owner occupied
dwelling into a duplex to accommodate Mom or Dad!
Just a Facelift, Please!
If you want to sell your home
and you simply want to improve the curb appeal, it makes sense to go with a
HELOC. Make sure you are aware of the current market value of homes in your
area to make sure you’re not going over the limit on the fair market value of
your home. You’ll want to get a return on your investment!
If you’ve had your home on the
market too long and have not been able to sell, you might want to make some
changes to give it a fresh new look and bring back the passion you once had for
your home. Your mortgage consultant will help you weigh out your options for
financing based on your outstanding mortgage balance, income and credit score.
Regardless of your reason for
home improvement, make sure you share your goals with your mortgage consultant.
He or she can walk you through the various loan options and confer with your
tax advisor to make sure you’re getting the best deal possible.
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