Your home is an important purchase. You need to make sure you find the right contractor to get the work done and you need to come up with the plans to make it perfect. Along the way, you will need to see whether you have the right finances to get it done.
One option available is to do a cash-out refinancing on your home. This allows you to get some cash based on the equity of your home. These are often lower in interest and can be easier to get compared to some of the other loans and funding sources. You will need to be careful with taking out too much, but it may be the best way to take care of major home remodels.
Completing a Refinance to Remodel
When you decide to do a cash-out refinance, you will basically refinance the mortgage on your home, but you will do it for more than you owe. You can then take the difference in cash. The more equity you have in your home, the more you can convert into cash later on.
Let’s say that you purchased your home for $160,000 a number of years ago. You have paid it down to $1350,000 but it is now worth $200,000. You would have $65,000 in equity in the home.
Most banks are not going to let you take all of the cash out of the home. This is risky and they want there to be some money leftover in the equity in case you do not pay your loan back. Most of the time, you can only take 80% of the value. This will depend on how much the home is worth at the time of the refinance. The bank will help you get that done.What Can I Use the Cash Refinance For?
When you decide to do a cash-out refinance, all of the money that you get will be tax-free. You will need to pay that money back as part of the balance of your mortgage, but the interest rate is much lower than you would get with a personal loan.
You are able to use that cash for pretty much anything that you want. You should use caution when doing this because it is money that you will need to pay back and it can be expensive if your mortgage is high. But if you need money for a remodel, it is often easier and more affordable than some of the personal loan options.
Homeowners can use this option to help with home improvements, to take a vacation, for debt consolidation, to purchase a new car, or even for school tuition. The money is technically something that you can use in any manner that you would like.
Is a Home Refinance a Good Option?
For some homeowners, the home refinance is one of the best options for them to choose. It allows them a way to get some major work done on the home and it is often available at a lower rate than what you would find with taking out a personal loan. If you have a good deal of equity in your home and a good credit score, this may be the option that you need to get some money.
This does not mean the money is free and that everyone should do it. You are basically taking out a larger loan on your home in order to get the work done. This can extend the amount that you owe on the home, the amount of time that you will spend paying back the loan overall, and can increase your monthly mortgage payment as well.
To even get started on the process, you will have to do a refinance on the home, which is like going through the mortgage process. This is a long and drawn-out process. You already have the home and being denied simply means you stay in the house at the same rates you are doing now, but it does take several months and a lot of work to refinance.
Before you decide this is the best option for you, it is a good idea to really look at all of the choices and determine whether this will get you ahead. Decide if you can handle going through the mortgage process and crunch the numbers to see if this is a good option. For some, it is an amazing way to get money for a remodel; for others, not so much.
What About a Home Equity Line of Credit?
This type of loan is going to be similar to the home equity loan, but you will get the cash as a line of credit, rather than a lump sum. You are able to borrow between 75 to 85% of the home value with this, depending on the exact loan you get and what the bank says when you work with them on the refinance.
This method is more like a credit card that you will carry a balance from month to month and then make payments on. You will also need to pay interest. This can make it more expensive than doing the refinance. You also will need to deal with two different loans at the same time, so most homeowners choose to do the home refinance when they need remodeling money.
Choosing to Refinance Your Home for Remodels
While you need to take care of some major remodels in your home, you may want to consider doing some refinancing to help you get the funds you need. Make sure to compare rates and work with different banks to get the best deals on your refinancing before you get started on that major renovation.
