What Types of Home Loans Cover Renovations?
Is your property the perfect home and the perfect investment? If you’re like most homeowners, there are upgrades, renovations, and restorations you can make on your property that will either increase its value, or help improve how comfortable you are with the look and feel of your home.
For that, you need to make changes, but financing those changes can be difficult for the average budget. Luckily, there are many home loan options that can cover renovations, and many lenders – like Open Mortgage – are happy to provide you with loans for home renovations.
First: Why Lenders Finance Renovations
One of the main reasons home mortgages have such a low interest rate is because they come with some of the best collateral currently available: your home. Lenders know your property will always come first, and your property has immense value. That allows lending money to be less risky, despite the high amount of the loan, which in turn means lower rates.
Lenders finance renovations for similar reasons. Even though the loan itself doesn’t have the same collateral, lenders know renovations mean more equity, which in turn means less risk. As long as the loan is connected to your mortgage, you can make upgrades with a low interest rate that improves the value of your home.
Types of Loans for Home Remodeling and Renovations
There are many ways to finance home renovations, but the best way to pay for their costs is with specific home loans from reputable lenders. Some of the most effective choices include:
- Home Equity Loans – Once your home has established some excess value (equity), many homeowners choose to take out a home equity loan, which is a lump sum with a fixed interest rate that can be used to pay for any home restoration. The amount of the loan is relative to the amount of equity you have on the property.
- Home Equity Lines of Credit (HELOC) – HELOCs are very similar to home equity loans, except they work a little more like a credit card, with money you can access at any time. They have a slightly more variable interest rate, which makes them less ideal for expensive renovations, but they work great for smaller projects here and there.
- FHA 203(k) Mortgages – FHA 203k mortgages are a mortgage refinance and a home loan for restoration all rolled up into one. It allows you to refinance your home based on the value that your home will have AFTER the improvements have taken place, and then provide you with the extra financing to pay for the renovations.
- Fannie Mae HomeStyle Renovation Loans – This mortgage provides a convenient and economical way to make moderate repairs and renovations using a single-close first mortgage, instead of a second mortgage, home equity line of credit, or more costly financing methods.
- Reverse Mortgages – For seniors who would like to make renovations to their property, either for pleasure or for necessity, you can also consider a reverse mortgage. Reverse mortgages pay you some of your home’s equity, and do not require you to pay the loan back until you or your heirs sell the home.
These are the most common loan types for remodeling your home. To learn more about this subject, contact one of Open Mortgage’s friendly loan originators.