What It Takes To Finance A Home Remodel

People who dream of renovating a home or just redoing the kitchen or bathroom might wonder about how other homeowners are able to accomplish financing a home remodel that can cost tens or hundreds of thousands of dollars. Paying for a home remodel can often involve a new loan, but generally, these homeowners have cash available from other sources. The majority of customers are able to use money from their personal savings to pay for remodeling projects in their home. Some are able to refinance their mortgage to afford the costs while others may receive inheritances or monetary gifts from a parent or loved one.

People who have spent their own money to finance a home remodel are generally more frugal and ask more questions about the labor that is going on within their home. They are more interested in learning about the materials and the warranties involved when compared to those who have received gifts or refinanced their mortgages. Among those who had saved up were dual income couples and those whose children had recently completed college, which ended many of the education expenses.

A late 2012 survey by the National Association of the Remodeling Industry also suggests that many remodeling customers have adequate savings to cover their remodeling interests. The survey found that 96% of the 518 NARI member contractors who completed the questionnaire had accepted checks as a form of payment. Approximately one-quarter had accepted credit cards, home equity loans, bank home improvement loans or cash. Only 6% had arranged financing for their customers.

Homeowners who tap into their equity to remodel their home will be limited to the lenders maximum loan to value or LTV ration. Most lenders will not allow for a homeowner to borrow over 80 percent of the value. However, shopping around might provide a local lender or credit union that would be willing to move up to 90 percent instead. Experts advise that homeowners should be smart shoppers and ask upfront about the loan to value limitations. A second mortgage might be especially difficult to get because second mortgage lenders are among those who had the worst results during the housing crisis.

However, some homeowners can still manage to have enough money to handle a modest remodeling project that would make a house they had planned to sell a little more comfortable for an extended stay. There are many people who are refinancing and taking a low rate and then pulling out $30,000 in order to help get their home to the condition it needs to be in order to ensure that they would be able to live there comfortably. Some homeowners are even able to remodel without any concern about funds. Others factor in energy saving rebates and other savings into their calculations so that they can make sure that every dollar is counting towards an investment into their home. It costs less to make a house more energy efficient every month, making it an ideal option to pursue while remodeling.

Amy Wright
Amy Wright is the Lead Editor of Remodeling Central. When she isn't playing with her dogs she is trying to remodel a classic Chicago style brownstone with her husband.

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