Home renovation can be an excellent way to increase the appeal of your home and its value if you plan on selling it soon. Even if you don’t, renovations help make your current space more enjoyable for when you’re there. So why not turn those visions into reality? Here’s a few options that could help get you started!

How Much Can You Borrow for a Home Renovation?

The loan amount you can access largely depends on the specific loan product you decide to use. The majority of lenders who offer home equity loans rely on Loan-To-Value (LTV) calculations, and generally cap their maximum loan amount at 80%.

To illustrate, if your current home value is $325,000 and you owe $225,000 on your existing mortgage, you will have $100,000 in equity, but your loan amount is limited to $35,000. Here’s the calculation: your current home value ($325,000) X the maximum LTV of 80 percent (.80) – the amount you still owe ($225,000).

However, you could increase your borrowing power with an alternative form of funding or innovative loan product, contact a mortgage expert at Sword Mortgage today to learn more.

How Can You Finance a Home Renovation? 

Financing your home renovation project is possible through a variety of options, including a HELOC, home equity loan, personal loan, cash-out refinance and more. While some credit cards may have sufficient available funds to cover your renovations costs – beware! Credit card interest rates can be extremely high and are not recommended as the best option for financing projects. A rehab loan specialist at Sword Mortgage can help you in making the right decision for your specific circumstances.

When researching your options, consider the following:

  • What’s your budget for the renovation?
  • How much can you afford in monthly loan payments?
  • How long do you want to make loan payments?
  • How long will it take to complete the project?
  • How much equity do you have in your home?
  • How much can your home value potentially increase after completing the renovation?
  • If refinancing is a viable option?

Should You Finance Your Home Renovation?

Are you planning to update your home but don’t have all the funds required? Financing your renovations can be a wise decision and could prove more profitable in the long run. Not only will it add value to your home and increase your equity, it also won’t strain or deplete other resources such as borrowing from family/friends or emptying retirement accounts. With competitive rates on loan products available, you’ll be able to make payments that fit within any budget over an extended period of time.

Ways to Finance Your Home Renovation

Home Equity Line of Credit (HELOC)

Unlock the power of your home’s equity with a Home Equity Line of Credit (HELOC). Most lenders offer HELOCs that provide access to up to 95% of your home’s worth, minus any outstanding balance on mortgages. With this incredible financial tool, you can borrow against the asset that is already yours and use it for whatever needs arise!

Home Equity Lines of Credit (HELOCs) typically have a 10-year draw period, during which you can borrow up to their credit limit and make regular payments towards the principal balance plus interest. After this term ends, you’ll usually be given 15 years to fully repay what’s left and any related interest may even be tax deductible. It’s important to remember that your monthly payment could potentially increase as more money will now go towards the principal repayment amount.

Home Equity Loan

Home equity loans provide a one-time lump sum of funds with competitive interest rates, without the need to refinance your current mortgage. Although it may take some time to qualify for this loan as you will have to possess enough equity in your house, once approved, home equity loans are an excellent option for any project that requires extra funding.

Personal Loan/Home Improvement Loan 

With an unsecured personal loan, you can access the funds you need without having to pledge your home as collateral. To qualify for a low-rate loan, however, you must have a good to excellent credit score and reliable income. Most of these loans come with fixed interest rates and repayment terms that range from five years up to seven years.

Cash-Out Refinance

Cash-out refinances offer you the financial flexibility to access your home’s equity. To determine how much money they are willing to lend, lenders will use an LTV ratio and provide loans for 80 to 85 percent of that number minus what you still owe on your mortgage balance.

To illustrate, if your home is worth $475,000 and you owe $375,000, you have equity of $100,000. With a cash-out refinance, you potentially qualify for a loan of $80,000 to $85,000, and your new loan amount will be $455,000 to $460,000.

Government Loan

Transform a fixer-upper with the help of either a Fannie Mae HomeStyle or an FHA 203k loan.

With Fannie Mae Homestyle Loans, you can borrow up to 95% of your home’s post-renovated value. This loan type requires you to refinance and pay Private Mortgage Insurance (PMI) if the loan-to-value ratio surpasses 80%.

The Federal Housing Administration (FHA) backs FHA 203k loans, which are limited to 96.5% of the property’s worth after renovation. To be eligible for this loan, homeowners must refinance their present mortgage and it has a maximum term of 30 years. Those with relatively low credit scores can still qualify provided they have at least 580 points.

How To Get a Loan to Finance Your Home Renovation

Before you select a loan product, be sure to do your homework and research the offerings of multiple lenders to determine which will best suit your needs. Make sure to inquire about qualification criteria so that you can plan accordingly if it is necessary for you improve your credit health before applying or consider another financing option for your renovation project. Call (770) 757-5750 or complete our online form to speak with a loan expert at Sword Mortgage to get help on navigating your options and find a loan that fits your needs today.