Happy New Year!
The holiday rush is over, and the time for resolutions is here. So what are some of yours? Get your body back in shape? Get your budget back in shape? What about your home?
Is this the year to remodel? If so, one of the biggest questions you'll face is how to pay for the remodel. According to the National Association of Home Builders, half of all homeowners who undertake remodeling projects of $5,000 or more need to borrow money to pay for the work.
Here are some ideas, courtesy of Steve Holliday at Holliday Financial, on how to finance a remodel.
Home equity line of credit: A home equity line of credit allows you to access the equity from your home. In some cases, up to 100 percent of the appraised value is available. You pay the interest only on the outstanding balance, allowing you to control the financing cost. The interest rate and terms are determined by a combination of your credit scores, the line amount and the loan-to-value ratio.
Home equity loan: This loan is more traditionally known as a second mortgage. You receive a lump sum of your available equity. You repay the loan generally in fixed monthly payments over a fixed period of time, with 10-year and 15-year loan terms common. As with an equity line, your interest rate is determined by your credit score, the loan size and loan-to-value obtained.
Cash-out refinancing: If you owe less on your home than it's currently worth, you can refinance, pay off the existing loan(s) and use the "cash-out" for your remodel. The possible benefit here is to consolidate all of the financing into a long-term repayment. Fixed, adjustable and interest-only loan options are available.
Unsecured consumer loan: An unsecured consumer loan may be a good option for a small home-improvement project less than $10,000. Most financial institutions offer these kinds of loans. Unsecured means that the borrower's home is not pledged as collateral and there is no lien on the home. Instead, the security for the loan is the consumer's creditworthiness. There is less paperwork, but the interest rate is usually higher and is not tax deductible.One-time close construction loan: If you have a major renovation or a tear-down and rebuild in mind, then a one-time close construction loan may work best. This loan allows you to use you home's future value to fund your project. This loan requires building plans and a project-cost breakdown in advance of the loan application. The advantage is having the construction loan and the long-term loan in one transaction.
Architects Ann Robinson, AIA, and Annie Vernon, AIA, welcome questions at [email protected].