In today’s real estate market, a good number of homeowners are electing to stay in their homes rather than try to sell their properties when their area is already heavily saturated with homes for sale. To accomodate growing families and changing needs, many owners are seek to build additions or make modifications to their existing homes. In this article, we’ll explore some of the home loan programs that consumers can use to help finance their home improvement projects.
Home Equity Loans – Typically, home equity loans are taken out as second mortgages and cash is received in a single, lump sum payment. Interest rates for home equity loans are usually higher than for borrowers’ first mortgages as they are considered riskier loans for the lender. This is because the first lien holder would be in a stronger position to collect in the case of a borrower’s default.
Mortgage rates are often fixed and some have balloon payments where the existing balances are due upon completion of the introductory periods.
HELOCs (Home Equity Lines of Credit) – Are usually variable rate products where a borrower can tap into the line of credit up to a cap set by the lender. Interest is usually only paid on the balance owed making them a popular choice for consumers who are not looking to borrow large sums at one-time. Terms can vary from just a few years up to 30 years.
203K FHA Loans – These government-backed rehabilitation loan programs have become increasingly more popular in recent years. With 203K streamline rehab loans, borrower can obtain a single loan at a long term fixed or adjustable interest rate to help finance improvements for owner-occupied residences. 203K loans are designed to facilitate uncomplicated rehabilitation and improvements to homes for which plans, consultants, engineers and architects are not needed. Some lenders even offer these programs for manufactured homes. At the time this article was written, repair costs were not to exceed $ 35,000.
Conforming and Non-Conforming Cash-Out Refinancing – If interest rates are low at the time you are considering refinancing, you may want to looking into simply refinancing out of your existing mortgage while pulling out some of the equity you’ve acquired over the years. Most lenders offer some type of fixed rate or adjustable rate cash-out refinance options. Loan-to-value levels can vary greatly especially between conforming and jumbo loan products (those which exceed an area’s conforming loan limits).
FHA Cash-Out Refinancing – FHA’s cash-out loan-to-value limits have tightened in recent years as home prices have continued to fall in many real estate markets throughout the United States. Still, FHA loan cash-out limits are higher than what is available through almost any other refinancing product such as conventional Fannie Mae and Freddie Mac products.
As you can see, there are plenty of home improvement loan options available for homeowners who are seeking financing assistance. Always be sure to consult with a licensed mortgage professional who has experience with these types of mortgage products. There are definite pros and cons to all of these types of home improvement financing options and qualification criteria, closing costs and fees, and interest rates can vary greatly between programs.