Sometimes renovating your home or building new additions can be an easy process. Other times, it may require a complex set of steps before you even get to actual construction. Some people might have the funds to finance their entire renovation from the jump, but most do not have that capacity. In fact, it’s perfectly normal and reasonable to seek out a loan to finance renovations on your home.
There are many kinds of loans and many kinds of renovation processes that will impact the finances of your project, but that just means there are lots of options to choose from, which also means you can find the right fit for your finances. Here’s how you can choose the right loan for your home’s renovation.
Even though factors like your finances, your area, and other things of that nature might be factors in picking the right loan for your home’s renovation, it’s important to address the actual renovations that you want to do on your home so you can figure out which loans are appropriate for your situation.
Here are a few different renovation types and a bit of guidance on finding loans for them:
1. Building From Scratch
Building your own home from the ground up is one of the most intense options out there when it comes to renovating or building — mostly because it’s hardly renovating at all.
The loans that often come along with building a home from scratch tend to be less in line with the traditional idea of a mortgage and more in line with a to take on the whole process from the ground up, the standard loan that usually comes along with house flipping is just a mortgage. However, if you are planning on flipping a house you already own with new renovations, you may want to go for a more standard loan.
The loans that often come along with building a home from scratch tend to be less in line with the traditional idea of a mortgage and more in line with a short-term construction loan that’s around one year in length.
3. Small Renovations
When it comes to the nitty-gritty of home renovations, the kinds of loans you’ll be looking for might differ based on the project itself. Although every situation is different, smaller renovations like a single room or a single project tend to have fewer options when it comes to loans.
Normally, smaller loans that could cover the cost of something like home renovations don’t tend to apply to personal projects. You may need to shell out the cash for that yourself unless you can secure a specialized private loan. However, you can try to keep things as affordable as possible by setting a budget and asking tors for estimates on their services before you choose.
4. Larger Projects
If you’re thinking about bigger projects, renovations, and investments that you can dive into on your own property, there are plenty of loan options available that you can explore. While the exact loan you go with will depend on your situation, your budget, and how much you want to invest, your loan situation can go a variety of different ways.
By the time you know what project you’re embarking on, you probably already know whether or not you’ll need a loan for your renovation. If you find that your project is well suited for a loan, here are a few that might be good to check out.
1. Cash-Out Refinance
This one is a little bit self-explanatory, as it involves refinancing your mortgage for a bigger balance than what you currently owe so that you can take cash out and utilize it for renovations — or other things, too, in theory. This can especially be a good idea since it involves to the same loan as your mortgage. This loan doesn’t make you apply for two separate loans or pay any closing costs twice over. It’s also a great option for those who have a fixer-upper and need financing for home improvements while they are investing in their property. If this sounds like you, you might want to look into this loan option.
3. Home Equity
Home equity loans allow you to borrow money against the equity that you have already built up in the home that you own. This loan does not work to pay off your existing mortgage, because you would continue paying your normal mortgage payments while you make payments on your monthly loan. These loans normally have fixed rates and have a wide range of available time spans. This can be a great option for large projects and serious remodels.
4. Home Equity Line of Credit
A home equity line of credit is similar to a home equity loan, but it works a little bit more like a credit card than a traditional loan. It allows you to borrow from a pre-approved limit and pay it off like a bill, allowing you to borrow again periodically. This can be a great option for people who have long-term projects that require funding on a more inconsistent basis than an entire overhaul would require.
5. Credit Cards
If the home equity line of credit seems like it would work for you, another option that you might want to consider is simply getting a credit card in order to finance your projects. This can be a great option for those looking to engage in slightly smaller projects that they can handle paying back consistently. This can also be a great option for those who are looking to build their credit.
6. Personal Loans
Another option that you may want to look into is simply getting a personal loan. This can be a good option for people who don’t have equity to borrow from and who can pay things back relatively quickly, as personal loan timelines tend to be five years or less. Think smaller renovations rather than large overhaul projects and house flipping.
Home Renovation Loans
There are so many ways to finance your home’s renovation, and the type of loan you choose will depend entirely on what is best for you. Whether you plan to buy a fixer-upper and flip it or you simply want a little bit of touching up on your long-time family home, there are many ways to find the right fit for you and your family.