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So, you have planned to remodel your home, roped in the best interior designer and going gaga over your favorite designs and infrastructure remodels? Well, I can understand how special it feels to convert your place to a dream abode, after years of struggle and all those savings. But the question is, how strategically have you prepared your finances?
Merely shelling out a huge chunk of money in order to fulfill a dream that was long unachieved isn’t really the thing you should only worry about. You got to look at the bigger picture as well.
Spending lump sum on the remodel would take you nowhere if all you are left with is a vulnerable saving account after the project is over. This calls for an ideal finance management strategy and proper implementation of the same before taking a decision to invest your hard-earned money in it. So, keep your home décor advisors on hold for a while, read through the financing tips as discussed below, think it over, and know your goals before venturing out.
1. Consider prioritizing the functionality of 203k insured loans
Are you aware of the existence of the FHA 203K loan? If not, then it’s never too late my friend. This particular loan scheme aims at providing an ideal solution for the homeowners who are planning to remodel their house. The loan would basically allow you to borrow money for the purpose of purchasing and remodeling a home.
The Federal Housing Administration or the FHA has set a minimum limit of $5,000 to borrow money, and the maximum limit would vary depending on the location and the likes. In addition to it, the loan scheme offers down payment facilities as well.
A 2016 report suggests that there were more than 70% of FHA loans closed during the month of May, as compared to that of 67% in the month of April. This clearly indicates the rising importance and application of FHA approved loans in terms of housing.
Thus, for homeowners planning to improve their property and remodel the house, applying for an FHA 203k loan can prove beneficial in terms of saving a significant sum of money in the long run.
Read more: Old house restoration tips
2. Analyze, evaluate and verify your financial status before investing
Your financial status should be in line with the amount of money you are willing to spend on the remodeling. There’s no point spending lump sum on remodels, only to realize that you are left with a miserable amount of fund after the project is completed.
Thus, the idea is to rope in a financial advisor or consult your family and friends, prior to calling up an interior designer. Consider reviewing your bank statements; examine the present and future income possibilities of yours and plan your expenses in accordance with the financial status.
3. HELOC is yet another helpful option to manage your finance
Applying for HELOC or the Home Equity Line of Credit is an option that can help people with a certain spending limit, from which they can borrow money in order to fulfill all home remodel aspirations. It is to be noted that HELOC has a specific withdrawal period, during which the borrower can sue the equity line.
In addition to it, the loan has a fixed repayment period as well. It is important for the borrower to repay the credit amount within the specified span of time.
The reason why HELOC is a favorable option for people looking for home improvement and remodeling is due to the fact that the upfront cost associated with it is comparatively low. For example, you can expect the settlement cost to vary between $2 – 5,000 for a standard loan amount of $150,000.
4. Borrowing from friends and family is always an option, provided you’re repaying them on time
In addition to the FHA loans and HELOCs, borrowing from friends and family is always an option, provided you have the financial backup and flow of income necessary for timely repayment. It’s a common fact that most of the homeowners tend to look for options that could help them with the savings account, and solves the purpose of financing remodel at the same time.
Even though it would be one of the last options for you to consider approaching your friends and family for a loan, but it is somewhat a nice idea to opt for if finance management is a priority of yours.
Here’s a fun fact – according to a survey, it was found that one in three respondents have borrowed from friends and family, and the bigger picture reveals that they owe $184 billion to their family and friends. While it could be a common phenomenon among people, but the idea is not to keep borrowers waiting for the repayment.
You need to be pretty sure of the fact that you have every scope to accumulate the repayment amount on time and pay them the borrowed sum of money without embarrassments and delay.
5. Rapid Renovation Loans is yet another option to count on
Talking of finance management and drafting a proper plan prior to the commencement of home remodeling, the Rapid Renovation Loan is yet another useful option that people can choose in order to reduce the cost and experience hassle-free financing.
The fixed rate loan amount under this scheme is up to $100,000. The borrower gets to choose his/her monthly payment dates and payback terms. In addition to it, there are no closing costs, annual fees and appraisal amount associated with it.
It only takes a minute to withdraw an amount and invest it in a project, but it would take years to recover a loss in case the venture fails in terms of financial gains.
6. You may also choose to opt for a mortgage or cash-out refinance
Last but not the least, the mortgage refinance or the cash-out refinance could help you with a reduced rate and financial investment necessary for home improvements. However, even though mortgage refinance is relatively an easier and convenient way to manage your finance while planning for a home remodeling, there are certain crucial aspects associated with the same that needs to be prioritized and taken sincerely. To explain it further, let me introduce you to the risks associated with this process, for a better understanding and precaution while you opt for the process.
You need to understand the fact that applying for a mortgage refinance would involve your house, which would eventually be used as repayment security or what is better known as collateral. In addition to it, the mortgage refinance is going to be a long-term debt against a short-term expense of home remodeling.
This, as a result, would require you to review all financial gains and every other source of passive income possibilities. Since the repayment procedure would continue for a longer period of time, you cannot take decisions to apply for a mortgage or cash-out refinance in a snap of a moment.
However, if you are confident of the fact that renovating your house and upgrading the infrastructure would only help to increase its value in the near future, then applying for a mortgage refinance might fetch you satisfactory outcomes, as far as investment risk and repayment limitations are concerned.
Wrapping it up
Before spending on house renovations and remodeling, take some time out of your busy schedule, and consider implementing secured financing strategies. After all, you should also enjoy some stress-free moments with family and kids and enjoy a sound sleep in your dream abode, which could otherwise be hindered due to a wrong financial move and an inappropriate fund accumulation strategy.