How to Pay for a Home Renovation

How to Pay for a Home Renovation

by Home Improvement

Home renovations can be exciting, but paying for them requires a lot of planning. If you aren’t careful you could end up with unnecessary debt.

The best way to pay for a home improvement, be it a kitchen refresh or emergency roof repair, is to use cash savings—it costs nothing in interest and leaves you owing no one. But if you have that kind of financial wiggle room, you should consider yourself lucky.

Most of us will have to think about borrowing. Your first thought might be a credit card, since these offer the fastest, easiest route to extra cash. But unless you can pay off the balance in full, there are smarter, and potentially cheaper, ways to borrow money for home renovations—for example: a home equity loan, a home equity line of credit, or a rehab loan backed by the federal government.

With the help of personal finance and mortgage experts, we’ll walk you through the options for financing a home renovation.

What to know about paying for home improvements

Home improvement projects come in all shapes and sizes, from fixing the water heater to knocking out walls and expanding your home’s footprint. They’re generally one of two flavors: a-nice-to-have or a need-to-have. 

Figure out which category your project falls into before you decide how to pay for it, says Taylor Kovar, founder of Kovar Wealth Management in Lufkin, Texas, because not all projects justify taking on debt.

Need-to-have

Emergencies happen—pipes burst, roofs rot and appliances need replacing. If you have to make a repair to maintain the condition or comfortability of your home and you’re short on cash, debt might be your only lifeline. Still, aim to not to sacrifice cost for convenience. Think about when you need the money—as it happens, the quickest way to get cash will likely cost the most in the long run. 

Ideally, you should aim to budget for need-to-have projects ahead of time, says Jenna Biancavilla, a Phoenix, financial planner.

“You should be planning for maintenance and repair, especially if you didn’t buy a new build,” Biancavilla says. As a rule of thumb, you can expect those costs to equal about 1{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} to 2{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} of your home’s value each year, she says. For a $300,000 home, that means having up to $6,000 ready to go in a savings or checking account. 

Nice-to-have

The motivation behind these projects is often cosmetic or luxury. They usually aren’t urgent and therefore may be something to save up for instead of financing. 

There are exceptions, though, like if you’re making improvements to increase the value of your home to sell it soon. In these cases, taking on debt may be justified. Just bear in mind the data: While improving curb appeal and upgrading highly-trafficked areas such as kitchens and bathrooms will often boost a home’s value, it’s unlikely you’ll recoup 100{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} of the money you put into a remodel. 

With a purpose and a timeline for your project in mind, here are several financing options to consider.

Home equity loan

Pros: 

  • Fixed monthly payments
  • Lower interest rate than a credit card
  • Repayment periods from five to 30 years
  • Interest payments may be tax deductible

Cons:

  • Approval to funding can take up to two months
  • Fixed loan amount
  • May have prepayment penalties
  • Need significant home equity
  • House is collateral

How it works & when it’s best: If you own a large portion of your home, a home equity loan is a great, low-cost way to borrow money. You’ll encounter less red tape than you would with some other options like FHA-backed loans, and you may be able to borrow more.

Your home equity is the difference between the home’s appraised value and what you owe on your mortgage. Home equity loans, also called second mortgages, let you borrow a fixed amount of money from that equity pot and use it however you want. 

If your home is worth $500,000, for example, and your mortgage balance is $200,000, then your equity is $300,000. The bank will evaluate your credit score and debt obligations, decide how much you can borrow and give you a cash lump sum. (Lenders typically require homeowners to keep at least 15{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} to 20{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} equity.) 

Repaying a home equity loan is straightforward: Monthly payments are made up of interest—which may be tax deductible—and principal, and begin almost immediately after you receive the cash.

The fact that the loan is for a fixed amount makes it a smart tool for staying on budget, says Kovar, unlike using credit cards or a home equity line of credit (more on that later).

Home equity loan interest rates are fixed and tend to be slightly higher than primary mortgage rates, yet still far below credit card rates, particularly for borrowers with good to excellent credit. In January 2023, average rates on home equity loans ranged from 6.93{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} to 9.44{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9}, while average credit card rates hovered around 20{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9}. 

“If you have the equity in your house, you’re gonna get the best interest rates because your house is being put up as collateral,” Biancavilla says. But that’s also a risk. If you fail to repay what you owe on the loan, the bank can take your home. (The same rules apply to your primary mortgage).

Home equity line of credit

Pros: 

  • Ability to borrow what you need, when you need it
  • Initial payments are interest-only
  • Potential for a lower interest rate in the future
  • Interest payments may be tax deductible

Cons:

  • Approval to funding can take up to six weeks
  • Floating interest rates mean payments can go up
  • Lower initial payments can lead to overborrowing
  • Need significant home equity
  • House is collateral

How it works and when it’s best: A home equity line of credit, or Heloc, is a way to set up a “revolving” line of credit, which lets you pull money from the equity in your home whenever you need it, up to a certain limit. It’s like a credit card, except it’s backed by the value of your home.

Helocs can be a good method for financing home improvement projects with unpredictable costs, saving you from borrowing too much, or more likely, too little. “Everyone underestimates what they’re going to need,” says Biancavilla. They may also be appealing if interest rates are expected to drop soon, since you don’t lock in a fixed rate with a Heloc (more on that in a moment).

Most Helocs give you access to a line of credit for 10 years, known as the draw period. During that time you only have to make interest payments on what you actually borrow (and you may be able to deduct those payments on your taxes).

This interest-only payment scheme means you’re paying a lot less in the beginning than you would with a home equity loan to borrow the same amount of money—but that can sometimes be a “trap,” says Kovar. Eventually, both interest and principal payments will come due. “If you can’t afford to pay that loan back while you’re doing it, then what are you leaning on to be able to pay it back after the fact?” he says.

As Biancavilla puts it, “If someone can only pay the interest, [they’re] gonna end up home broke and that’s not a good long-term financial strategy.” Ideally the homeowner will make an effort to repay what they borrow in full along the way to keep interest costs down and replenish the line of credit, she says.

One more thing: Like credit cards, Helocs have floating interest rates, where your rate changes based on prevailing market rates, sometimes as often as every month. When your rate moves up or down, so does your payment.

FHA-backed loan

Pros: 

  • Little home equity needed
  • Down payment can be as low as 3.5{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9}
  • No minimum credit score requirement (depends on individual lender)
  • Loan terms range from six months to 20 years

Cons:

  • Least spending flexibility
  • Maximum borrowing amount may be lower than non-government-backed loans

How it works and when it’s best: You might think of the Federal Housing Administration as mainly helping first-time home buyers get mortgages. But the government agency also backs home improvement loans for certain types of projects.

With a so-called Title I loan, you can get up to $25,000 to spend on projects that make your home “more livable and useful.” That includes things like adding built-in appliances, widening doorways or remodeling your kitchen for a disabled person, and installing solar panels. If you hire a contractor, you may be able to use the loan to cover labor and materials, but if you do the work yourself, you can only cover the cost of materials.

Pools, outdoor fireplaces and other luxury projects are not eligible for financing with a Title I loan, so if you want full spending flexibility, this loan isn’t for you.

You don’t need to have an FHA mortgage to qualify for a Title I loan, but you need to apply for the loan through an FHA-approved lender and meet their individual lending requirements. You can expect interest rates to be similar to typical rates on FHA mortgages, but the rate you get is determined by the lender.

It’s also worth noting that, due to FHA guidelines, Title I loans between $7,500 and $25,000 are secured by your home. Loans for less than $7,500 don’t require collateral.

Another government-backed option, the FHA 203(k) rehab loan, is for new buyers or homeowners who are refinancing. It lets you combine a home improvement loan of at least $5,000 with a new mortgage or refinanced mortgage. For example, say the purchase price for a home is $300,000 and your down payment is $30,000, your mortgage would ordinarily be $270,000. 

With a rehab loan, you can take out more than you need for the mortgage, say $290,000, and use the remaining funds for home repairs. It’s similar to a cash-out refinance, but you don’t need significant equity to qualify. The loans can have either fixed or adjustable rates.

Biancavilla recommends doing your own research on government loan and grant programs before turning to a mortgage loan officer at your local bank. Not all lenders have access to or training for those programs, she says, so they might not present it as an option if you’re looking for home renovation financing. 

Personal loan

Pros: 

  • Quicker funding than a home equity loan or Heloc
  • Fixed interest rates
  • Straightforward repayment
  • Loan funds can be used for anything
  • No collateral required
  • Significant home equity not required

Cons:

  • Need strong credit to qualify for lowest interest rates
  • May have origination fees or closing costs of 1{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} to 5{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} of the loan amount
  • Shorter repayment period than home equity loans, usually between one and five years

How it works and when it’s best: As far as its structure, you can think of a personal loan like a home equity loan—you get a fixed amount for a fixed interest rate and start making monthly payments immediately. This can be a good option if you know exactly how much you need to complete a project, or you at least have some cash to cover any shortfall.

The big difference is that personal loans for home improvement projects don’t use your house as collateral. This means they’re quicker to obtain than a home equity loan or a Heloc. But no collateral often translates to a higher interest rate for some borrowers, since it means there’s more risk for the lender, and closing costs.

“That’s where having a really good credit score comes into play,” Kovar says. Without strong credit (or a cosigner), you’ll probably be offered an interest rate that’s closer to what you’d get with a credit card. In that case, it’s better to turn to a home equity loan, provided you have enough equity to qualify.

If a personal loan is your best option, be sure to compare offers from several lenders, not just your go-to bank or credit union, Kovar urges. Online banks, for example, tend to offer comparatively better rates than traditional brick-and-mortars.

Cash-out refinance

Pros: 

  • Single loan may keep financing costs down
  • Potential for a lower interest rate than a new home equity loan or line of credit
  • Cash can be used for anything

Cons:

  • Approval to funding can take up to two months
  • Closing costs apply to the entire new mortgage amount
  • Not advantageous if today’s mortgage rates are higher than your current rate

How it works and when it’s best: A cash-out refinance is yet another way to tap your home equity for cash, but the process is more involved than other options. It requires taking out a new loan that’s larger than your existing mortgage and pocketing the difference. 

Say you have a $250,000 mortgage and $200,000 in equity. With a cash-out refinance, you could get a new mortgage for $300,000, shifting $50,000 from your equity into the new loan. That $50,000 would come back to you in cash.

A cash-out refinance leaves you with a single loan, which could lower the cost of financing a home improvement project. That’s because you’re only paying interest on one loan balance, rather than two, such as a primary mortgage and a home equity loan. 

But a cash-out refinance is only advantageous if the mortgage rate you can get today is lower than what you’re paying. In the current rate environment, a cash-out refinance would likely mean taking your entire loan balance and setting it at a new, higher interest rate, Biancavilla says, plus you’ll have to pay closing costs on the new loan. “That’s gonna be way too costly. You don’t need to do that,” she says.

Family loans

Pros: 

  • Potentially lower interest rate than Helocs, credit cards or personal loans
  • Interest payments may be tax deductible
  • No formal lender requirements, like a credit check
  • Fixed repayment term

Cons:

  • Requires a willing family member with available cash
  • Loan holder must use federal market rate benchmark to avoid additional tax consequences

How it works and when it’s best: Borrowing money from family may seem like a last resort, if it’s even available to you. But “sometimes utilizing your parents as your loan holders could be a really great idea,” Biancavilla says. 

Say your parents are retired and holding onto a significant amount of cash in a high-yield savings account, rather than the stock market, and earning around 3{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} interest. Meanwhile, you’re considering a Heloc with an 8{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} interest rate to remodel your master bathroom. What about, instead, a loan from the bank of Mom and Dad? 

Ideally they charge an interest rate that pays them more than any savings account is yielding, and you get financing that’s cheaper than a traditional bank loan. “That spread between what the parents are getting and what the kids are willing to pay—if you can meet in the middle, both parties would be better off,” Biancavilla says.

The key is treating it like a “real loan,” she adds, to avoid unnecessary income tax consequences. That means the loan holder needs to use the applicable federal rates tables to set the interest rate. The minimum required interest rate on family loans in January 2023 ranged from about 3.85{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} to 4.5{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9}, depending on the repayment term.

The loan holder also needs to abide by a few other IRS rules: setting up a fixed repayment schedule, reporting the interest income on their tax return and putting everything in writing.

Credit cards

Pros: 

  • Quick access to cash
  • Borrow what you need, when you need it
  • Possibility of avoiding interest with a balance transfer credit card

Cons:

  • Higher interest rates than home equity loans
  • Need very good or excellent credit to qualify for a balance transfer card

How it works and when it’s best: In a pinch, credit cards are an easy way to pay for small home improvement projects—you can instantly borrow the amount you need and spend it on whatever you want. The major downside is that credit cards charge higher interest rates than most other borrowing options, and the rate you pay can fluctuate as often as monthly based on prevailing market rates. It’s easy to get into financial trouble if you don’t pay off your balance in full each month.

Say you charge $1,000 to a credit card with a 20{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} APR. If you can only afford to pay $50 toward the balance each month, it’ll take two years to pay off the debt and you will have spent more than $1,220 on repayment.

If you have a very good or excellent credit score (around 670 or higher), you may be able to avoid steep interest charges by applying for a balance transfer credit card. This allows you to move your balance from one card to another that has a temporary 0{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} APR. This grace period can last anywhere from six to 24 months, but afterward your interest rate will jump back up. 

The advice, recommendations or rankings expressed in this article are those of the Buy Side from WSJ editorial team, and have not been reviewed or endorsed by our commercial partners.

37{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} Of Real Estate Agents Couldn’t Pay Rent In October

37{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} Of Real Estate Agents Couldn’t Pay Rent In October

by Real Estate News

Hire delinquencies surged in October when compared to one particular thirty day period prior as the housing current market continues to wrestle with high property finance loan rates, in accordance to a new study.

New marketplaces call for new ways and practices. Much more than 250 gurus and market leaders will consider the phase at Inman Join New York in January to enable you navigate the marketplace shift — and prepare for results in 2023. Register nowadays and get a unique present $1099 ticket price tag.

As substantial home loan fees ongoing to gradual home gross sales and set stress on rates last month, a lot more than a third of little true estate organizations have been unable to afford to pay for the rent on their offices, in accordance to a new study.

The study, from tiny company networking organization Alignable, especially found that little serious estate businesses experienced a lease delinquency amount of 37 {d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} in Oct. That is up from just 27 {d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} just one thirty day period prior. Alignable’s report on the survey notes that this upward tick is not surprising “given the point out of the housing market in many areas.”

The report eventually details to desire costs and hire delinquencies as proof of a “troubled housing marketplace.”

The study gathered responses from 4,789 compact enterprise owners and was executed between Oct. 15 and Oct. 27. Bloomberg initially claimed on the survey.

The results arrive amid popular turmoil in the housing market. After two several years of traditionally reduced mortgage loan rates — which at some details dipped under 3 per cent — for the duration of the COVID-19 pandemic, the Fed’s efforts to tamp down inflation this 12 months sooner or later drove prices previously mentioned 7 {d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9}. The outcome has been slowing sales numbers, as properly as predictions that home rates will drop nationally future 12 months and that some brokers will go away the market.

Several top real estate executives also not too long ago predicted the downturn could last via 2023.

It’s unclear what influence the downturn will have on person agents. The median gross revenue for the organization’s customers in 2021 was $54,300, according to details from the Countrywide Affiliation of Realtors. Nonetheless, the knowledge also exhibits that for Realtors with 16 or a lot more a long time of experience, the median revenue was $85,000. These numbers propose expert agents have managed to pull ahead during the latest growth many years and therefore presumably inexperienced brokers are poised to be the toughest hit by the downturn.

NAR does not monitor regular cash flow knowledge for brokers, so it stays unclear how these quantities may have transformed through this yr.

But Alignable’s new survey does recommend that the actual estate sector is sensation the agony from the downturn. That discomfort is also not minimal just to serious estate. Amid other items, Alignable observed that 37 p.c of all U.S. little companies were unable to pay their hire in Oct. Eating places and automotive firms were being amongst the hardest strike, with 49 per cent of enterprises in both sectors struggling with delinquencies. Other sectors struggling with rent consist of gyms, retail suppliers and design businesses.

States with significant enterprise rent delinquency premiums include things like Massachusetts, New Jersey, New York and California. The report even further notes that delinquencies are even larger in Canada, the place 42 {d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} of modest enterprises were being unable to pay back their rent in Oct.

Factors for rising small business hire delinquencies cited in Alignable’s report incorporate higher rents, fears of recession, fuel rates, source chain concerns and falling purchaser shelling out. The report tends to make a special level of noting that “59 p.c of small business enterprise proprietors using this poll claimed that shoppers are paying out a lot less this month than” past thirty day period.

Speaking to Bloomberg, Chuck Casto — Alignable’s head of investigation — also explained that at the root of the situation, small businesses are “basically being eaten away by inflationary pressures.”

E-mail Jim Dalrymple II

10 Smart Ways to Pay

10 Smart Ways to Pay

by Home Improvement
  • Using cash is the least expensive option for paying for home improvements.
  • Borrowing against the equity you have in your home with a loan or line of credit is also cost efficient.
  • Unsecured loans will have higher rates, but you won’t risk losing your home if you’re unable to pay.

There are many reasons you may want to renovate your home. Besides the added value they might bring,


home renovations

 may be necessary to fix safety issues, provide additional comfort, or add space for new living situations.

Any successful home-improvement project starts with a good plan, a key part of which is how much it’s going to cost and how you’re going to pay for it. As of mid-2022, the average remodel or renovation project was just under $47,000, with most falling in the range of about $18,00 to $77,000, according to data compiled by the digital home-improvement marketplace HomeAdvisor.

Start with the basics

The way you pay for a home-improvement project will depend on your individual situation. 

“When financing home improvements or dipping into cash reserves, there is never a one-size-fits-all answer,” says J.R. George, senior vice president at Trustco Bank. “There are just too many variables involved to be able to price each method accurately.”

Before you begin, George recommends you ask yourself these basic questions:

  • How much money do you need and how long will it take to pay that amount back?
  • Are current loan interest rates favorable?
  • If you have cash reserves, how much are you earning on that cash versus how much it will cost to borrow?

Having answers to these questions can help you figure out which method of paying for home improvements will work best for you.

10 ways to pay for your home-improvement project

1. Save the money and pay cash

Cash is the least expensive way to pay for home improvements. There are no interest charges, origination fees, or repayment periods. A 2021 Bank of America survey found that 62{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} of homeowners making significant changes to their homes planned to use savings to pay for them.

However, as ideal as this sounds, the large cost of renovations can put this option out of reach when your home needs a lot of repairs or an extensive remodel. 

“While this can be an effective way to finance some smaller projects, it might not be feasible for homeowners who are doing big projects such as a complete kitchen makeover,” says Franco Terrango, retail sales executive at Bank of America. “Pairing savings with other financing options can give you the funds you need to accomplish your goals.”

Pros: No interest costs; no credit check or loan qualification 

Cons: Ties up a large amount of money that could be used for other purposes

When it makes sense: When you have the funds to pay in cash and when the scope of your project is smaller 

2. Home-improvement loan

A home-improvement loan has a fixed interest rate and doesn’t use your home as collateral. Amounts can vary from $3,000 to $100,000. You can find home-improvement loans at banks,


credit unions

, online lenders, and private lenders. They’re structured similarly to personal loans. 

“A homeowner is approved based on creditworthiness, like with a credit card,” says Vince Passione, founder and CEO of digital-lending platform LendKey. “There’s never a lien on their home, and the entire process is almost instant.”

Pros: Not secured with your home; quick approval process; fixed interest rates

Cons: Higher interest rates than a home-equity loan or line of credit; shorter repayment period

When it makes sense: If you don’t have equity in your home or don’t want to use your home to secure the loan

3. Home-equity line of credit

A home-equity line of credit (or HELOC) offers a relatively low-cost borrowing option with a lot of flexibility when it comes to home renovations. It is secured by your home. If you aren’t able to repay it, the lending institution can foreclose. Banks, credit unions, and other lending institutions may offer HELOCs. 

“As homeowners are accumulating equity at a faster rate, a home equity line of credit lets them borrow against the available equity in the home up to their credit limit,” Terrango says. “Additionally, home-equity lines of credit give homeowners the flexibility of a revolving credit line that can be accessed as needed, and it tends to offer more attractive interest rates than other financing options – which will save money in the long run.” 

How it works: A home equity line of credit works similarly to a revolving line of credit such as a credit card. There’s a maximum amount you can borrow, and you make installment payments with interest. Lenders generally won’t approve you for more than 85{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} of your home’s value, minus the amount you owe on your mortgage. 

Your credit limit will also depend on how much you’re able to qualify for. If, for example, the amount that can be borrowed against your home is $140,000, but your income and


credit score

 don’t qualify you for that amount, the limit will be lower. 

Money from a HELOC can be paid directly to the contractor in the form of a check or debit transaction.

Pros: Low rates; convenient access

Cons: Uses your home as collateral on the loan; may have some closing costs

When it makes sense: If your home has a lot of equity and if you’re unsure of what your remodeling costs are going to be

4. Home-equity loan

A home-equity loan is like a HELOC in that your home is used as collateral for the loan. However, with a home-equity loan, the entire amount is borrowed up front, and repayments begin immediately. The interest rates are low and funds can be dispersed at the homeowner’s discretion. 

The amount that you can borrow depends on your income, credit report, and the market value of your home, but generally follows the same guidelines as a HELOC. The main difference is a homeowner borrows a fixed amount with a fixed interest rate on a home-equity loan. There may also be additional costs.  

“Borrowers need to keep in mind when borrowing against your house is that it is a mortgage transaction,” George says. “This often results in some form of closing costs which can equate to thousands of dollars.”

Pros: Low interest rates; set amount of money financed

Cons: Full amount must be applied for up front; uses home as collateral on your loan; possible closing costs

When it makes sense: If you have a larger renovation with a solid bid from a contractor

5. Cash-out refinancing

If you have a lot of equity in your home, you can use a cash-out refinancing to replace your old mortgage with a new one and receive the difference in your bank account. With a cash-out refinancing, you take out a loan larger than the amount you still owe and receive a portion of your home’s gained value in cash.

It’s a new mortgage, so you’ll qualify based on income and credit history. A cash-out refinancing generally has a maximum loan-to-value (LTV) ratio of 80{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9}, meaning, you can only cash out up to 80{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} of your home’s value. 

For example, if you owe $200,000 on your house and it’s worth $350,000, you can refinance up to 80{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} of $350,000, which is $280,000. The $200,000 mortgage is paid off and you’re left with $80,000 in cash.

Pros: Costs of renovations wrapped into your new mortgage; lower interest rate

Cons: Renovation financed along with your mortgage over the entire term of loan; full mortgage application and approval process 

When it makes sense: If you have a lot of equity and borrowing conditions are favorable for a new mortgage 

6. FHA 203(k) renovation loan

An FHA 203(k) loan combines the purchase of a property and needed renovations into one mortgage. Funds for the renovation are placed in escrow and are paid out as projects are completed. The cost of the renovation must be at least $5,000, but not more than the FHA mortgage limit for the area. 

Applicants will need to apply through an FHA-approved lender and be able to find contractors who can bid for the work that needs to be completed before the loan closes. Once the loan closes, the work can commence and contractors will be paid with renovation funds held in escrow.  

Pros: One loan for both the purchase of a property and the renovation; lower credit score and


down payment

 requirements

Cons: More hoops to jump through to get work approved, scheduled, and paid for

When it makes sense: If you have less income or a lower credit score, or would like to combine the costs of a renovation with the purchase of property

7. Fannie Mae HomeStyle renovation loan

A HomeStyle Renovation loan covers the purchase of a property and renovations. Before the loan closes, the borrower must work with a contractor to submit plans for approval. The LTV ratio is calculated by taking the project into account. As the work is completed, the contractor can request the funds held in a custodial account. 

It’s similar to an FHA 203(k) loan, but the Fannie Mae program bears the hallmarks of a conventional mortgage, such as cancellable mortgage insurance. You do have to find an approved HomeStyle Renovation mortgage lender. 

Pros: Low rates; one loan for both the purchase and renovation of a property

Cons: Not as flexible as other options

When it makes sense: If you want one loan for the purchase and renovation of a property and are able to get a solid bid from a contractor who can meet the timelines required by the loan

8. Government-backed renovation loans

For those who qualify, a government-backed renovation loan could be a low-cost option for a home improvement project. Here are some lesser-known options. 

  • HUD Title I property improvement.  Amounts can be as much as $25,000 with terms as long as 20 years. To qualify, the project must substantially improve the safety and liveability of the property. 
  • VA cash-out refinance. Terms and conditions are similar to conventional cash-out refinancings but with the added VA benefits, such as lower fees and credit requirements. 
  • USDA single-family housing repair loans and grants. This program offers loans up to $40,000 to very low-income households in eligible rural areas. Grants are also available for borrowers over age 62. The money can be used to repair, improve, or modernize your home. Loans are for 20 years at a 1{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} interest rate. 

9. Personal loan

Applying for a personal loan is similar to what you would experience with a home-improvement loan. Your home is not used as collateral, so you’ll pay a higher rate than you would with a secured loan. But personal loans also have fewer strings attached than other types of


home-renovation

 financing, giving you more flexibility in how you can use the money.

Most banks, credit unions, and other lenders offer personal loans. They will examine your creditworthiness in determining how much you qualify for. 

Pros: Doesn’t use your home as collateral; often has lower interest rate than a credit card; flexibility in what it’s used for 

Cons: Shorter repayment period and higher payments than a home equity loan or HELOC; may not qualify for as much as you would with a HELOC or home equity loan

When it makes sense: When you don’t have enough equity for a HELOC or home equity loan or do not want to use your home as collateral on a loan

10. Credit card

Using a credit card is one of the most expensive ways to fund home improvements. Nevertheless, Bank of America’s survey found 24{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} of households planned to do so.

While this method is convenient and may make sense with a smaller project, most other options will come with a lower cost. One exception might be a new credit card with an introductory 0{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} interest rate. If you can pay for the renovations within the introductory time period, the cost will be low. The ability to dispute charges for dissatisfactory work or materials could also be a benefit of using a credit card.

However, with APRs ranging anywhere from 16{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} to more than 24{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9}, carrying a large amount of debt on a credit card becomes very costly. It also can affect your ability to qualify for other, lower-interest loans. When your credit utilization becomes high due to the amount of renovation charges you’re putting on the card, your credit score goes down significantly.

Pros: Easy, no paperwork to have your loan or renovation plans approved; funds immediately available; doesn’t use your home as collateral

Cons: High interest rates; may lower your credit score if your credit utilization gets too high

When it makes sense: With smaller projects or projects on a shorter timeline

Home improvements: how to pay for building work as prices rise | Home improvements

Home improvements: how to pay for building work as prices rise | Home improvements

by Home Improvement

Since the first lockdown eased, many homeowners have wanted to improve their properties. The race for space has made loft conversions and extensions popular, while some of those who cannot make structural changes are considering how to remodel their homes.

“Most people have been working or otherwise spending significant amounts of time at home and, probably for the first time, really getting to know why and how their existing home wasn’t working for them,” says Sam Levene, a director of the designers and architects LLI Design. “This, together with large stamp duty costs, means it can be a significantly more appetising proposition to refurbish or extend an existing home to suit your wants and needs rather than move.”

Katy Esdon of Esdon Architecture in Salisbury has been busy since June 2020, when some of the Covid restrictions were first relaxed. “We had about six or seven months of being inundated,” she says. “It’s quietened down a bit but has been steady ever since.”

Her clients generally want extensions and “really wow” conversions – the company has designed new kitchens and remodelled the downstairs of houses to include playrooms and working from home space. There’s “lots of glazing”, Esdon says. “People are moving away from bifolding doors and are instead looking at structural glazing, large sliding panels or Crittall-style glazing as an alternative.”

Rooflight Company: Colonial Wharf-14
The Rooflight Company says the cost of glass, steel, MDF, timber and more has increased in price since the first Covid-19 lockdown. Photograph: Rooflight Company

However, that glazing costs considerably more than it did in 2020. According to Nick Cockayne of the Rooflight Company in Oxfordshire, since the first coronavirus lockdown, “glass has increased by 6{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} to 12{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} depending on the type, steel has increased from £950 a tonne to £1,500, MDF has shot up by 38{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9}, and silicone, timber, stainless steel and aluminium have all increased in price”.

Painful inflation is not confined to windows. According to the National Federation of Builders, material prices are changing weekly – and are on average 23.5{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} higher than they were last year. The cost of cement, for example, rose 1{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} in February, imported timber went down in price by about 20{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} in the same month but that followed a two-year rise of 200{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9}. The cost of sanitary ware was up 1.9{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9}. Water-based paint went up by 2.3{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9}, while non-water-based paint has risen by 3.1{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9}

“It is therefore very likely that prices [will] increase mid-build, especially for new-build or extensions,” says Rico Wojtulewicz, the head of housing and planning policy at the NFB.

Dealing with rising prices

Most companies giving estimates for home improvements will advise that prices can change – and, with the situation moving so quickly, some are making sure this is spelled out in extra-large print.

Esdon says her practice is being clear with clients about the impact of inflation. “Things have got really expensive,” she says. “We’re telling people that you don’t get as much for your money as you did two or three years ago.”

Her company is advising people to put by more than the traditional 10{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} contingency fund. It works with builders who are asked to give a fixed-price tender for the work. “This means there are no surprises,” she says. “But they are not valid for as long as they were – before, you might have had a couple of months to make a decision but now they are only valid for two or three weeks.”

Contractor looking at plans on home development
A written quote states the price that will be charged for the work the builder has detailed. Photograph: Reeldeal Images/Alamy

A written quote states the price that will be charged for the work the builder has detailed – it cannot charge you more unless you later add jobs or change the specification of the materials being used. Make sure that everything you want is included at the outset, if possible. If prices keep rising, things that you add later may come at a higher cost than you anticipate. A builder might not be willing to give a written quote for a job that will be done some months in the future or may make it clear that the quote is only valid for a certain period.

Levene suggests that if you are responsible for buying anything for the build, “where at all possible, if you have out-of-the-way, clean, secure storage at your project, opt to order materials early and store them there. Or, if on-site storage is not possible, negotiate extended delivery dates with your suppliers so you can order something at today’s price but have it delivered as and when your project requires it.”

Most loft conversion companies, for example, ask you to supply the sanitary ware for any bath or shower room you are having installed, so you could buy this sooner rather than later.

Another option may be changing the spec of your original design – Esdon says clients are opting for cheaper cladding or different timbers to keep down costs.

To add to homeowners’ woes, there are long lead times for things such as planning permission, which mean prices could rise before you get started. Permitted development rights cover many extensions and loft conversions now, so this will not be an issue for everyone. But if you live in a conservation area or are doing work not covered by the rights, you may have a long wait.

According to the planning, architect and builder’s company Studio Charrette, case officers at some local authorities are struggling to get through a backlog. “As a result, the timeframe for consumers to get started on their projects, if they have applied to the council for permission, is in excess of three months,” it warns.

Paying for it

LLI Design – period terrace Highgate - UGF - reception – overview 1
More people are weighing up how to remodel their homes. Photograph: Richard Gooding/LLI Design

The good news is that despite recent increases to the Bank of England base rate, borrowing through personal loans and remortgaging remains historically cheap.

Personal loans of up to £50,000 are available and can be arranged over a term of one to eight years, says Andrew Hagger, a finance expert at the website MoneyComms.

“If you’re looking to borrow £20,000 over five years, for example, you can still get rates as low as 2.8{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} APR with a monthly repayment of £357 – however, you’d need a pristine credit record if you want to bag those best-buy rates,” he says.

Larger loans cost more. Hagger says borrowing £35,000 over seven years starts from about 6.7{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9} APR, which means monthly repayments of about £520. Those rates are fixed, so you do not have to worry about repayments increasing in future months.

“It’s usually easier and quicker to borrow from your own bank as it should have all your financial details and track record to hand; however, don’t let that stop you from shopping around – the biggest banks aren’t always the cheapest,” he adds.

Some big banks will give you an instant decision and put the money in your account the next day.

A personal loan will be easier to arrange than a mortgage, typically. But on larger amounts the rate will be lower, and you can spread the repayments over a longer term.

Credit cards can be a smart way to pay for home improvements, especially if you’re looking for a smaller sum, Hagger says. There are still cards offering up to two years’ interest-free borrowing on purchases, from brands such as Barclaycard, Sainsbury’s Bank, Tesco and MBNA.

“It’s always worthwhile putting an element on your credit card, as this gives you the added section 75 protection should you hit a snag with your builder and the improvements don’t come up to scratch,” Hagger says.

Is it worth it?

Open plan kitchen by Tom Dunn in off-grid farmhouse renovation.
Glazing costs much more than it did in 2020. Photograph: Andreas von Einsiedel/Alamy

Yes, if you like where you live and want your home to suit your needs. During the stamp duty holiday, when you could save up to £15,000 in tax, moving became more appealing to those who wanted extra space. Now that money will go some way towards buying you a basic loft conversion, with no dormer, and you will save the cost and hassle of a move.

Not necessarily, if you are hoping to recoup the costs when you move. Jonathan Rolande of the National Association of Property Buyers says that when it comes to return on investment, “loft extensions need to add a required benefit to give a return on the very high cost. If a house already has five bedrooms, will a sixth add very much? Not usually.”

He adds: “Double glazing won’t add a huge amount – buyers expect a home to have working windows. Kitchens and bathrooms that give a wow factor will help the property sell faster and for more.”

How much will the work on your home cost?

The cost of your project will vary depending on where you live, the size of your home and the scale of the building work, and your choice of fixtures and fittings. The following are guide prices (excluding VAT) for a “standard” project, taken from the website MyBuilder.com and covering the building work only.

Small single-storey extension (3 metres x 5 metres): £16,000 to £21,000.

Medium extension (4m x 6m): £26,000 to £34,000.

Large extension (6m x 8m): £52,000 to £67,000.

Creating a loft room: £17,500.

Loft conversion with dormer: £45,000.

Hip to gable loft conversion: £54,000.

PVC lean-to conservatory (4m x 3m): £9,000 to £11,000.

Edwardian-style conservatory (4m x 3m): £10,000 to £12,000.

Victorian-style conservatory (4m x 3m): £11,000 to £14,000.

Painting (two-bed flat): £1,500 to £2,500.

Painting (five-bed room): £3,500 to £5,000.

This article was amended on 3 April 2022 to clarify that the figures quoted from MyBuilder.com do not include VAT, charged at 20{d4d1dfc03659490934346f23c59135b993ced5bc8cc26281e129c43fe68630c9}, and are calculations for a standard build – noting there are many variables within a project that can affect cost.

Sponsor spotlight: Winter home improvement projects that pay off

Sponsor spotlight: Winter home improvement projects that pay off

by Home Improvement

Refinishing hardwood flooring can make improvements to their ailment. (Pics courtesy Irons Brothers Design)

Just after a occupied getaway time, you may well be ready to unwind at property for the duration of the remaining winter months. If you’ve been wondering about building dwelling updates, you really do not have to wait around until the spring. Housing field industry experts are usually completely ready to tackle new projects and operate with suppliers calendar year all over. Generally, through the “off-season,” dwelling advancement experts provide savings or reduced rates to attract clients. Even though remodelers have been active for the duration of the pandemic, you may well uncover it less difficult to routine a undertaking during the winter season months or get a crack on the price.

Listed here are a several assignments to think about during this winter year:

Refresh Your Floors. Hardwoods are a attractive and common function of residence decor. Like other residence capabilities, hardwoods have to have common focus to manage their enchantment. About time, dents and scratches can surface on your ground thanks to use. Sand and refinishing hardwoods can improve their condition. Refinishing hardwoods can be a Diy job on the other hand, the endeavor ordinarily involves major equipment, loud sounds and plenty of dust. A experienced floor refinisher can rejuvenate your flooring, immediately, appropriately and deploy dust mitigation tactics.

Update Your Roof. If the climate ailments are delicate all through the wintertime months, changing your roof is an alternative. If you choose to just take on this undertaking, you’ll have to be individual. Cold temperatures current some workflow problems. In many cases, materials these kinds of as asphalt shingles, demand specific handling and in some situations option adhesives when the temperature is cold. Your roof substitute could be finished via a collection of suits and commences. Creating this kind of house enhancement off-season will allow for you to acquire edge of a roofer’s versatile routine.

Window substitute enterprises may perhaps present exclusive pricing through the off period.

Exchange Your Home windows. If you have outdated home windows, you are going to begin to see them all-around the colder months. Try out this: Stand close to your window. If there is a obvious temperature fall or draft close to your window, it’s time for a substitute. Other telling symptoms for window replacements include condensation construct-up or operational worries (opening and closing). During the off-time, window replacement companies may have special pricing and can comprehensive your task in a shorter time frame. A professional will be certain the temperature isn’t disrupted much too a lot throughout the replacement approach.

Renew Your Partitions. An quick way to rejuvenate a place is to repaint or increase a new colour to the wall. A fresh new coat of paint can transform a place. Even a smaller sized painting undertaking, this sort of as portray one particular wall a bold hue, can liven up an existing room. Ahead of having on this task in the wintertime months, you’ll want to make positive the inside of your dwelling is warm plenty of for the paint to stick nicely. Paint manufacturers typically give facts on the ideal temperatures for adhesion. Like several other property advancement experts during the off-period, discovering a painting contractor really should be simple.

To seek advice from with a certified experienced to aid with residence enhancement initiatives this winter season or any time of calendar year, speak to www.ironsbc.com. Also check out Irons Brothers Design on Jan. 27-29 at the NW Remodeling Expo, in which they will have a booth and offer you two seminars. Master extra at www.homeshowcenter.com/seminars/seattle

— By Joseph Irons, Irons Brothers Development, Inc.

 




Winter home improvement projects that pay off

Winter home improvement projects that pay off

by Home Improvement
Waldenmyer

Waldenmyer

Right after a busy vacation time, you may perhaps be all set to take it easy at property in the course of the remaining winter season months. If you’ve been contemplating about building house updates, you never have to wait around until the spring. Housing marketplace specialists are often ready to tackle new projects and operate with suppliers 12 months round.

Generally, for the duration of the “off-time,” dwelling enhancement specialists offer reductions or reduced charges to attract shoppers. Although remodelers have been chaotic in the course of the pandemic, you might discover it simpler to program a challenge throughout the winter months or get a crack on the price.

Here are a handful of jobs to take into account during this winter season time:

Refresh your floors

Hardwoods are a stunning and basic feature of property decor. Like other household options, hardwoods require common interest to sustain their attraction. Above time, dents and scratches can seem on your flooring because of to use.

Sanding and refinishing hardwoods can enhance their issue. Refinishing hardwoods can be a Do it yourself project having said that, the job usually requires large machinery, loud sounds and a good deal of dust. A skilled ground refinisher can rejuvenate your floors, speedily, accurately and deploy dust mitigation strategies.

Update your roof

If the weather conditions problems are delicate throughout the wintertime months, changing your roof is an possibility. If you choose to choose on this challenge, you are going to have to be client. Cold temperatures current some workflow issues.

In lots of situations, resources such as asphalt shingles, need exclusive managing and in some situations choice adhesives when the temperature is cold. Your roof substitution may be finished intermittently. Creating this type of dwelling enhancement off-time will make it possible for you to acquire edge of a roofer’s adaptable routine.

Exchange your home windows

If you have old home windows, you will start off to see them close to the colder months. Try this: Stand shut to your window. If there is a visible temperature drop or draft in close proximity to your window, it’s time for a replacement. Other telling signals for window replacements

include condensation develop-up or operational troubles (opening and closing). Throughout the off-time, window substitution corporations may perhaps have special pricing and can comprehensive your task in a shorter time body. A experienced will make sure the temperature is not disrupted far too significantly in the course of the replacement method.

Renew your walls

An effortless way to rejuvenate a space is to repaint or add a new colour to the wall. A refreshing coat of paint can change a room. Even a scaled-down painting challenge, this kind of as portray a single wall a bold hue, can liven up an current area. Ahead of taking on this task in the wintertime months, you will want to make positive the interior of your house is warm enough for the paint to adhere perfectly.

Paint makers generally provide data on the best temperatures for adhesion. Like a lot of other home advancement pros during the off-time, obtaining a painting contractor really should be straightforward.

To obtain a qualified experienced to enable with residence improvement jobs this winter season or any time of 12 months, speak to the BIA at 330-494-5700 or stop by biastarkeco.com.

This article originally appeared on The Repository: Holly Waldenmyer: Wintertime house advancement initiatives that fork out off