With today’s tight housing market, some would-be home buyers have decided to stay put and remodel the homes they’re in. Once that decision is made, the next question quickly becomes, "Where do I get the money?"
There are a number of options available, on lending specialist says.
"When it comes to renovation, there are numerous ways to pay for it," said Joe Marty, vice president of lending at Home Savings Bank. "One way, obviously, would be cash, if available, (but) most folks usually end up doing some kind of financing. Typically, home equity loans or lines of credit are the most usual ways people pay for remodeling projects."
With a home equity loan, according to the Federal Trade Commission, the lender advances the total loan amount upfront. And with a home equity credit line, funds are drawn out as needed, similar to a credit card. With the advantage that you only pay interest on the amount that you actually take out, Marty said.
Besides equity, the lender will also look at gross income and what percentage of it is used to pay debt. That percentage will help determine what payments are affordable, he added.
Another option is using credit cards, but Marty isn’t very enthusiastic about that.
"Typically, the interest is going to be a higher rate than what you can get on some other type of financing, (and) some types of financing may offer tax advantages, which is always nice," he said.
Marty had one last tip about borrowing money for a renovation — budget for more than you think you’ll need.
"It’s a really good idea because you never truly know what you’re going to get into or find until you actually start the project. And so it’s always a good idea to have a little extra cushion."
