Tips on Refinancing to Fund a Home Improvement Project
When there are a lot of home improvements that need to be done on your home, you need to consider all of your options on how to fund this. Personal loans are a popular choice or you can go with the savings that you have to see whether you have enough to get the work done.
One method that many homeowners will try is to do a cash-out refinance and use that extra money to help them pay for the home improvements. The mortgage on your home will be for a larger amount and you have to watch out for some of the fees associated with this method, but it can be effective and low cost compared to some of the other options.
Homeowners who wish to do a refinance to help fund their home improvement project need to be prepared and ready to do this the right way. That is why we will discuss some of the top tips to help you refinance and fund your next home improvement project.
Know the Value of Your Home
Before you go into the refinancing of your home, it is important to know how much the home is worth. If you just moved in, you might not be able to refinance at all because the value of your home likely has not gone up enough.
Most lenders will only allow you to refinance up to a certain amount, usually 80% of the added value of the home to give them a little cushion and less risk of the housing market going down a bit. If you will have $100,000 in value to the home, then you can only get $80,000 of that for cash for the home with most banks.
You should not trust some of the valuation tools that are online to give you an accurate estimate. These tools are just guesses, not the real amount. Consider talking to a realtor and getting their opinion on the value of the home and whether now is a good time to refinance. Keep in mind that you will need an appraisal for the refinance so get an accurate number now.
Research More Than One Bank
Once you know the value of your home and have determined that it is worth your time to go with this for the home improvements, it is time for you to research more than one bank to get rates and terms with each one.
The interest rate that you pay is going to be important here. The lower you can get it, the better. Most of the time these refinance rates will be much lower than what you can find on a personal loan, but always double-check. You may find that the interest rates will change quite a bit over a week or even a month.
Never choose to go with the first bank you talk with. This may seem like a good idea because it saves you time, but you are missing out on some potential savings or a better deal with another bank. Crunch the numbers with at least three banks, though more is better, to make sure you are getting the best deal.
The trick here is to have the banks pull your credit at about the same time. This will give you the most accurate comparison because you are getting the current rates for each one at the same time. Plus, you can do several pulls for a mortgage or refinance in a short amount of time without harming your credit score, so it is a good idea to give it a try.
Consider the Cost of Refinancing
The next thing that you need to consider is some of the costs of refinancing. It is not enough to just tell a bank you want a bigger loan and then start to make the monthly payments. There will be interest payments on the loan, new terms and conditions of the mortgage, and even fees and closing costs that go along with this loan.
While many homeowners are able to get a good interest rate that may be even lower than the original rate they took out and have money that they need for a refinance, this does not mean the new mortgage should be considered free money.
There are many fees that come with any type of mortgage, whether it is a traditional first mortgage on the home or a refinance. This can include the title fees, the lender fees, and other closing costs, like an appraisal to make sure the home is worth what you say. You will need to take a look at what these costs total out to before you decide to refinance.
Homeowners also need to consider that the new mortgage is often more expensive than the original one and you may need to be careful that you are not taking off more than you can chew here.
The best way to prepare and make sure the loan does not get too big and the fees too high is to sit down and crunch the numbers. Consider what new number, and what closing fees, you would be comfortable with, and then make sure you stick to that.
Choosing a Refinance to Fund Your Home Improvements
For some homeowners, it makes sense to use a refinance on their homes in order to fund their home improvement projects. Your home has a lot of value to it and using some of that value, often at a low-interest rate, can make a lot of sense if you do not have savings and want to get the work done quickly.
It is smart to research all of the options and make sure that you choose this wisely. It can make sense for some homeowners, but for others, it may not make a lot of sense at all. Do some of the math, consider all of the costs of refinancing, and decide whether this is right for you.