Remodeling your current property is a potential alternative to new home purchase. Remodeling can be profitable if it increases the value of your home by more than what you’ve spent. However, it’s not cheap. Where do you get the money to remodel?
The most common source of financing is borrowing. There are many different types of loans. Some people choose to refinance their homes. You can take out a mortgage for more than what you owe the bank and use the remainder to pay for the renovation. However, if you’ve bought your home at the height of the housing market, this may not be an option. The value of your home may actually be less than what you owe. This is called negative equity. If you’re in this situation, don’t despair just yet. New government rules have made refinancing a little easier. If your mortgage is owned or secured by either Fannie Mae or Freddie Mac, you may still be able to refinance .
If refinancing isn’t an option for you, you can still take out a loan to pay for remodeling. If your credit is good, you can borrow money from the bank to pay the builders. If your credit score is a little low, you may have to put up your home as collateral to get a decent rate on the loan. Think twice before you do this. Secured loans are usually a better value than unsecured ones, but they also put your home at risk. If you don’t keep up with the payments, the lender has the right to take your house.
If you’re thinking of remodeling, talk to your bank about refinancing and other borrowing options. Then go talk to some other banks and credit unions. Your bank may not be offering the best deal. This is no time for brand loyalty. Go with the lender who offers you the best rate.