Adding value to your home with a renovation loan
Every homeowner wants to add value to their property. After all, no-one wants to sell for the same amount, or worse, less than it was purchased for. A home may have been bought with grand visions of a new kitchen, a different floor plan, a landscaped garden.
But after the buying process, there may not be enough funds to make the changes desired. Renovating for profit often pays off in the long-run, but finding that money in the first place can be tricky. Taking out a loan for the renovation costs can help things get underway sooner.
To apply for a loan, the first thing needed to be worked out is how much money is needed. Be realistic about what can be achieved, and what changes will actually add value to the home. Talking to professionals such as real estate agents can help decide on what features will draw future buyers in. For example, the owner may be tempted to install a swimming pool in the backyard for that touch of glamour, however this can be a costly investment that can turn-off some buyers (who may see the pool as being too high-maintenance).
Once an established plan has been worked out with its estimated cost, the research on various lenders to find the right fit can begin. Generally speaking, personal loans have a lower interest rate than credit cards. And many lenders of personal loans offer amounts from $4000 upwards, with the money deposited directly into individual bank accounts. You can’t borrow as much money with a personal loan though, so if the renovations will be on the higher side, this probably isn’t the option.
Construction loans are a popular way to finance renovations. This type of loan differs to a personal loan in that you don’t receive the full amount upfront, but instead receive payments as the construction process progresses. This is called a drawdown. While not having all of the money available from the get-go can feel constrictive, by receiving progress payments, contractors will be paid as they complete the work rather than handing over the total amount. This can be a relief should things not go to plan. Another benefit of a construction loan is that interest on the amount drawn, rather than the total is charged.
Refinancing the current home loan should also be considered to enable access to the home’s equity. This equity provides the security to offer the lender, so the more there is, the better. Equity is based around how much the property is worth compared to the loan, as well as how long the loan has been in place, and there can be many variables at play. Additionally, refinancing may be worth exploring for your client to see if they can get a more suitable deal on their home loan and save more money in the future. A mortgage broker can discuss the options available to your clients.
With various options to choose from, remodeling dreams can be realised. Once the money has been sorted, it’s time to pick up that sledgehammer and get renovating.