how to finance your home renovation
Ready to renovate your home in Baltimore, Maryland?
The decision to take the plunge will likely be based on how much the project is going to cost, and what method will be the best way to pay for it.
Keep reading to learn about how to finance your home renovation and decide which is best for your project.
how to finance your home renovation
According to Daniel Murtaugh, Mortgage Banking Specialist with First National Bank, there are four ways to finance a renovation:
- Cash
- Home Equity Line of Credit
- Cash out Refinance of Current Home
- Renovation Loan
Home Equity Line of Credit (HELOC)
A Home Equity Line of Credit or a HELOC, is a loan that leaves your existing mortgage in place and adds a separate second loan based on accrued equity.
Unlike a cash-out-refinance, a HELOC loan does not have closing costs, with that said, the interest rates on a HELOC are typically higher than a cash-out-refinance.
With this option you get to keep your existing mortgage interest rate.
cash out refinance of current home
A cash out refinance allows you to borrow more than you owe on your existing mortgage.
This is a great option for long-term owners who may have seen their property appreciate over the years.
The downside of this loan is that you may have a historically low interest rate on your existing mortgage that will be replaced with a market-rate mortgage. The current interest rates are between 5.8% to 6%.
renovation loan
Of these four options, only the renovation loan is based on the after-renovated-value of the property.
An appraisal will be ordered based on the finalized plans.
While it’s appropriate to plan on putting 15% down, that number may get significantly scaled back based on the loan to post-renovation value or LTV.
loans for fixer-uppers
Thinking of purchasing a fixer-upper property and immediately renovating it?
You may have the option to obtain a mortgage to purchase the home as well as funding for the renovation at closing. This can save time and money, although it requires a competent team and good organization. This is because you are effectively planning your entire renovation before closing.
You may be eligible for interest only payments during the construction up to 12 months.
building a custom home
Considering purchasing land and building a custom home? There are construction loans that allow you to also finance the lot (or land).
The process begins with identifying the land you wish to purchase, followed by an exploration of the site conditions to see if your project would be feasible.
renovating your home with the right team
A successful large scale renovation or construction project will require you to assemble a great team of professionals.
At guerilla, we have most of these team members in-house as part of our organization including real estate brokers, architects, and licensed contractors.
If you follow our work, you’ll note we don’t stop there. We’re also obsessed with design.
When clients engage us, they usually have a lot of questions:
- Should we renovate or add an alternative dwelling unit to our property?
- What type of expansion would be allowed by zoning?
- How much would a renovation project cost?
- Is this renovation eligible for historic tax credits?
- What do we anticipate the property might be worth after the renovation?
- What are my options to finance the renovation?
- Does it make more sense to sell my current home and purchase something else?
We’re here for the larger conversations. Don’t hesitate to start asking questions, the answers may lead you to exploring options you didn’t even know you had.
Like custom construction, financing should be tailored to your unique needs.
Our goal is to provide clients with properties they can enjoy and that offer long-term value.
reach out to a construction lender
Need a great construction lender?
Dan Murtaugh of First National Bank has provided excellent service to several of our clients.
Ready to renovate? Go guerilla.
