Looking to make an upgrade to your home? Want to sell your home and make it more attractive to buyers? Refinance and renovation loans can help you make those changes providing the cash you need to complete any kind of upgrade.
Choosing the Right Loan
According to Houzz, 27 percent of people renovating choose a bathroom as the space to tackle. There are so many ways to upgrade a bathroom including new fixtures, flooring, storage, and even making bathrooms bigger by removing walls. If a bathroom remodel is the update you want, there are a few types of loans out there you can choose from.
- Refinance – Good for when interest rates are low. Refinance your house for more than what you owe and take the cash to renovate.
- Home Equity Loan (HEL) – Use the equity in your home to take out a second loan for cash for the remodel.
- Home Equity Line of Credit (HELOC) – This loan is much like a credit card and is a revolving line of credit where you draw the money as needed.
- The Homestyle Loan from Fannie Mae – This loan looks at the future value of your home based on what renovations you plan on making and provides the cash you need to complete them.
Loan Preparation
There are a few things you’ll need to gather before applying for a loan. Doing these things first will make applying for refinance or renovate loans much easier.
- Credit Score – Most banks and financial institutions will look for a credit score of at least 620 credit score for these types of loans. The US Government offers everyone one free credit report once year. There are also companies that offer a free credit report but be wary. Ask if by running your credit report it will affect your credit score. It’s possible that by using these companies to run your credit report, it will lower it one point. If you’re right at a 620 credit score, lowering it by one point may put you out of reach for a loan. If you don’t use the free government report, your credit card company or bank may be able to help you out.
- Tax Returns – Most financial institutions will require two or three years of tax returns so gather those together.
- Net Worth – Most loan packages come with a personal financial statement you must prepare. Have yours ready in advance. Morningstar offers a free one online. A lot of information loan officers need will be on this report including income, debts, bank accounts and more.
- Bank Statements – Loan officers may ask for at least six months of your bank statements.
Pick the Right Loan for the Renovation
All of the loans mentioned above are great for home renovation. Some loans may be more beneficial depending upon why you are updating your home.
If you plan on staying in the home once the renovations are complete, refinancing your home or using home equity loan (HEL) are both good options. They come with payment terms of 10 to 30 years for repayment.
If you’re planning on renovating to sell the home, a home equity line of credit (HELOC) or Homestyle loan from Fannie Mae may be the better option. Both HELOC and Homestyle loans require firm estimates, timeframe and completion dates of the project. If you have these upfront from your renovator, these loans can be approved based on the quote and your creditworthiness. Once the project is completed, you can include any costs of the loan in your selling price to help you pay them off.
Choose Your Loans Wisely
Do shop around for a loan. Not all banks offer the same interest rates or refinance and renovate loan terms. Due diligence on your part will make the process go faster!
