There are many benefits to renovating your home; at the very least, you can expect to increase the value of your home and build your long-term investment. The potential in this area alone makes the renovation well worth your effort. Still there is always the challenge of finding the cash to do the renovations in the first place. For most people, borrowing money is the way to go; however, according to This Old House,
You have many more options. A mortgage broker, for example, can offer more than 200 different loan programs. And brokers are just one of the many lenders eager to put together a loan that fits your situation, even if your credit history is less than perfect.
This will mean that not only will you be able to find the money you need for your renovation project, but that quite possibly; you will find more than you thought you needed. Here are a few steps you'll need to consider.
Determine How Much You Need
Before you set out to apply for any type of loan you should decide whether you plan to hire a contractor or do the work yourself. This will help you to determine how much money you will need to complete the work. Of course, if you're pretty handy with the tools and skills needed to complete the job you'll save yourself a lot of money, but if not, you'll need to get firm estimates from several contractors. The bids should be broken down into the cost of labor and the cost of materials. You might want to add an additional 10% to that estimate to make sure that you're prepared for any unexpected changes in materials and/or costs.
If you've decided to do the work yourself, when you do the estimates make sure that you factor in additional costs like permit fees and equipment rentals. These are often overlooked when factoring the costs of renovations. Once you know how much you need you are ready to go on to the next step.
Determine the Loan Amount
When you're ready to determine how much to ask for you need to consider the loan-to-value ratio. This is the percentage of the appraisal value of your home. The usual limit is a maximum of 80% of the total home value. From that figure subtract the mortgage balance to get the maximum dollar amount you'll be able to borrow. If your credit rating is good you may be able to get more than the 80% but if it is poor the lender may choose to go for a lower percentage rate.
Shop Around
When you are ready to shop around for your loan start with the mainstream mortgages from the usual creditors; banks, credit unions, and brokers. These will use your home as collateral and the interest on the loan will be deductible. These are called A Loans from A Lenders. You need to have an A credit rating to get them.
There are also FHA-insured loans that will allow you to refinance your first mortgage and combine it with the home improvement costs all into one new mortgage. Or you may choose to apply for a home equity loan or a home equity line of credit.
There are many different options you can make to get the money you need to reinvent your home. Keep in mind the words of Shala Munroe from Demand Media,
Determine How Much You Need
Before you set out to apply for any type of loan you should decide whether you plan to hire a contractor or do the work yourself. This will help you to determine how much money you will need to complete the work. Of course, if you're pretty handy with the tools and skills needed to complete the job you'll save yourself a lot of money, but if not, you'll need to get firm estimates from several contractors. The bids should be broken down into the cost of labor and the cost of materials. You might want to add an additional 10% to that estimate to make sure that you're prepared for any unexpected changes in materials and/or costs.
If you've decided to do the work yourself, when you do the estimates make sure that you factor in additional costs like permit fees and equipment rentals. These are often overlooked when factoring the costs of renovations. Once you know how much you need you are ready to go on to the next step.
Determine the Loan Amount
When you're ready to determine how much to ask for you need to consider the loan-to-value ratio. This is the percentage of the appraisal value of your home. The usual limit is a maximum of 80% of the total home value. From that figure subtract the mortgage balance to get the maximum dollar amount you'll be able to borrow. If your credit rating is good you may be able to get more than the 80% but if it is poor the lender may choose to go for a lower percentage rate.
Shop Around
When you are ready to shop around for your loan start with the mainstream mortgages from the usual creditors; banks, credit unions, and brokers. These will use your home as collateral and the interest on the loan will be deductible. These are called A Loans from A Lenders. You need to have an A credit rating to get them.
There are also FHA-insured loans that will allow you to refinance your first mortgage and combine it with the home improvement costs all into one new mortgage. Or you may choose to apply for a home equity loan or a home equity line of credit.
There are many different options you can make to get the money you need to reinvent your home. Keep in mind the words of Shala Munroe from Demand Media,
When you don't have the cash to perform the renovations you want, there are several borrowing options that allow you to access the money immediately and pay it back over time. These options have similar requirements to getting a basic mortgage on your home.
You'll need to collect all your financial documentation and work on your credit history before you start to apply. So, if you're considering a home renovation project, you need to start very early to make sure that your money will be there when you're ready. If you'd like to find out more about financing your home renovation project you can visit online contractor sites to get more details on how to move forward.