A regular home renovation is essential for your security, health, and maintaining the value of your property. Two main factors which determine your home remodeling financing options are the project budget and source of funding for the project.
Once in a while, as a homeowner, you may be faced with the challenge of negative equity. Negative equity is a situation in which your total liabilities outweigh the value your home, hindering you from financing your home remodeling project through equity.
Are you unable to use your home as a loan security for your remodeling project? Don’t worry. You can use personal savings, unsecured consumer loans, and one-time close construction loans.
Paying for the cost of your home renovation in cash is the most recommended financing option. The sources of cash for home remodeling projects include bonuses, inheritances, and personal savings. You can either choose a savings driven or a date driven saving options.
Date driven savings: Choose definite dates for commencing and completing the remodeling project before determining the cost of renovation. Next, work on setting aside adequate finances between now and the time the project will be finished.
Saving driven: Entails working out how much you can save on a regular basis and then divide the cost of the renovation project by this value to determine when you can begin your remodeling project.
One-time close construction loans are suitable for major home remodeling projects. You use your home’s future value to finance the remodeling project. You will be required to submit a detailed drawing of your home and a complete breakdown of the project costs that you will incur before applying for the loan. The advantage of using this loan is that the construction and the remodeling loans are finalized at a go.
Usually, your project contractor and architect will help you determining comprehensive estimates of these costs. The bank then reviews the drawings and the estimates before putting a future value on your home, which they will use when considering your loans.
Unsecured Consumer Loans are offered by most financial institutions and are best for financing small home remodeling projects. With this type of loan, your home is not pegged as collateral. Your creditworthiness is your security for a successful loan application. Unsecured Consumer loans are not tax deductible and have higher interest rates. However, these loans have less paperwork.