HOW-TO: FINANCE YOUR RENOVATIONS

Posted by DB Wilson on Tuesday, December 27th, 2011 at 2:02pm.

If you recently purchased a fixer-upper, or are planning on making big renovations to your existing home, you may be wondering what your finance options are. Here are some of the best options for financing renovations.

According to the Millennial Housing Commission, few lenders are willing to administer home improvement loans. Most prefer to make home equity loans or unsecured consumer loans, as they are easier to manage. Home improvement loans usually require inspections and irregular draws on the loan amount as work is completed, which requires regional or national lenders to find local partners to provide oversight.

Financing repairs and improvements with home equity is okay for most homeowners, but it is difficult for many first-time buyers.  This is because they have lower-incomes, smaller savings, and have made lower down payments on their homes than first-time buyers a decade ago. So they have little equity to borrow against. Unfortunately, it is often lower-cost older homes purchased by first-time buyers that need the most work.

One option is refinancing your existing mortgage and taking out cash. With a refinance, you pay off an old loan on your home and take out a new one, usually at a lower mortgage interest rate. To refinance, you will generally need to have equity in your home, a good credit rating, and steady income. You can borrow a percentage of the equity to cover things like remodeling costs, debt consolidate, and even college tuition.

Don’t forget, however, that when you refinance, you will incur all the closing costs that go along with getting a new mortgage. Unless you're doing extensive renovations and can get a mortgage interest rate at least two points below your current loan rate, you may want to select another financing option to pay for your renovations.

Another refinancing option is getting a second mortgage. This is a loan against the equity in your home. Financial institutions will generally let you borrow up to 80 percent of the appraised value of your home, minus the balance on your original mortgage, of course. And similar to refinancing your existing mortgage, you may incur all the fees normally associated with a mortgage. These fees include closing costs, title insurance and processing fees.

If you aren’t interested in either of those options, you can contact the government about home improvement programs.  And you can always borrow from a finance agency, but we suggest making that your last resort. They generally charge high rates.

For more information on financing your home improvements, please contact RE/MAX of Boulder, Inc. at 303-449-7000 or 1-800-825-7000.

RE/MAX of Boulder, Inc. located on the corner of Canyon and Folsom, is nationally and locally recognized as one of the most successful real estate offices in the industry. Nationally, they are one of the "Top 500 Power Brokers in the United States" as listed in National Real Estate & Relocation magazine. Real Trends ranked them #1 in the Nation for Closed Sales Volume for 2010. Regionally, for the 4th year in a row, the company has been named the #1 RE/MAX office in America for Single Office Closed Volume. They can be reached at 303.449.7000 or visit http://www.BoulderCO.com. Connect with them on Facebook and Twitter, search remaxofboulder. Subscribe to their YouTube channel and see videos of all their homes for sale at http://youtube.com/remaxofboulder

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