How To Finance A Home Improvement Project

By Cory Shuett, 23 Jan 20:58

All of those home improvement projects that you have been delaying need to be done as soon as possible.

According to David Hall, the senior vice president of Quicken Loans, good results depend on three main factors:

1. Choose the Right Project This can considerably boost the resale price of your home. Many experts agree that kitchen and bathroom remodels and second story additions produce the greatest return.

2. Be careful not to over-improve. It's hard to regain the investment in a home that's already the most valuable in the area. Remember, varied tastes most likely won't draw ordinary homebuyers.

3. Find a Good Contractor Doing this will get your projects completed on time and on budget. Friends, neighbors and co-workers are good sources for a referral. Also, drive around your area and look for signs at job sites. This is great way to see a contractor's work in person.

While some use cash or credit cards, others may find that borrowing money from their home equity or refinancing their mortgage are much better choices.

Home equity loan is a second mortgage protected by the equity in your home, normally with a flat mortgage rate. These rates may be higher than your initial mortgage, but they're usually lower than the interest rate on a credit card. The interest paid on home equity loans can be tax deductible, while the interest paid on credit cards is most likely not.

A home equity line of credit is a different kind of a home equity loan. You will get a line of credit protected by the equity in your home that you can pay back and us as you need to. It is better for the most important home improvements projects where several payments need to be paid to a contractor over a period of time. Interest rates can change and you might pay a small, yearly account fee.

With a "cash-out refinance" you refinance your current mortgage and create a new one that is made up of your initial mortgage in addition to the home equity you choose to draw on.

A cash-out refinance could let you lock up that lower mortgage rate. The interest you owe is normally tax-deductible.

Suppose you owe $100,000 on a $200,000 home and need $20,000 to remodel your kitchen. You can adjust your initial mortgage into a new one for $120,000, taking out that $20,000 as a single payment when the loan closes.

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