House renovations take a lot of time and money, so how are you going to pay for a new bathroom addition? Well, it depends on your credit, income, current mortgage payments and various other factors. You may be surprised that not just your bank may have a solution for you. There are several options to help pay for your new renovations if you need to completely cover the amount or just a partial. The best way to get started is finding an estimate of cost for the entire renovation project. You can calculate this amount by adding up the square footage, estimating the cost of materials and labor, adding in a 10 percent increase to cover any miscellaneous needs. You can get a more accurate figure from a contractor on materials and labor to complete your renovation. Once you've figured out a budget, you can begin to explain the options for financing.
Homeowners who have a decent amount of equity built into their home will be able to refinance. You can refinance your first mortgage for a higher amount than you currently owe and get a cash difference to pay for the home renovation. You may also take advantage of the same monthly mortgage payment if you extend the time period of the loan. Also, if the project makes structural changes to your home, the lender may be able to approve a loan based on the estimated value of your home once the renovation is completed.
Home Equity Loans
A second mortgage or home equity loan allows you to tap into a home's equity. It usually will have a higher interest rate than the first mortgage but lower closing costs. And, because the loan is secured against the value of your home, it usually provides a lower interest rate than an unsecured loan. With home equity loans, you get all the money that you are borrowing at once, which will definitely help you if you house renovation requires that you pay up front to a contractor.
Home Equity Line of Credit
A home equity line of credit (HELOC) is when you receive a revolving line of credit secured against the value of your home. It is a good option when paying for a home renovation if you need to pay for the project step-by-step or if you are planning to do the project yourself. You can afford to make payments as you go along with this option. You access the money as needed through a checkbook tied to your loan account. This will help you to pay different contractors or if you are making purchases at Home Depot and other home improvement stores. Most HELOCs will have an adjustable interest rate and will give you the option of paying only the interest.
Personal Loan or Line of Credit
Another option is a personal home. This is best if you have just a small renovation project. These loans will give you a lower fee and they will not be secured against your home. Also, personal loan and line of credit are not tax deductible.
Whatever option you pick, you can contact a lender to get pre-approved for a loan so you know how much you can afford to spend on the renovation. It is also a good thing to talk to a contractor and get a budget that is 10 percent less than your actual loan amount. Since there are usually some unexpected costs with home renovations, you must be able to prepare for those sudden financial issues.