If you have a home, you may want to make a few structural or stylistic changes to suit your aesthetic preferences and lifestyle better. Home renovation loans can help you get enough money to repair or renovate your house. But what exactly is a reno loan? Learn how you can spend your renovation loan and what types of loans you can use.
How Much Can I Get With Renovation Loans?
A home renovation loan is any type of loan that offers emergency funding for home renovations. Want to replace your kitchen countertop, install new windows, or extend your living room? A renovation loan can help you afford the high cost!
Home renovations typically cost thousands of dollars, so you likely need a sizable loan to afford the cost of labor, tools, and supplies. Home improvement projects generally cost more if you hire a general contractor versus doing the renovations yourself. However, there are instances when hiring an expert is the best course of action to avoid damage, injury, or improper installation.
The amount of money you can get with a renovation loan depends on the lender, your credit background, and your credit score. Individuals with lower credit scores may find getting money for home improvements challenging. Lenders may be wary about offering a lot of money if your credit score goes up and down a lot. Most financial institutions offer high-interest rates, and low loan amounts to borrowers that pose a financial risk. But there are ways to secure more money with a low credit score, so rest easy!
How Much Money Do I Need To Renovate My House?
The cost of renovating or repairing your home varies depending on the project. If you want to know how much money you may need to remodel your home, take a look at some standard renovation options below.
Adding an Addition to Your Home
Adding an addition to your home can mean several things. Homeowners can choose to make rooms bigger, add rooms, or create an entirely new floor by building up. Home additions are a significant project, so the cost is going to be relatively high. If you want to add an addition to your beloved house, the average cost is about $46,750. Hiring a general contractor will typically cost an additional $4,700 to $9,400.
Remodeling Rooms in Your Home
Remodeling a room in your house can add space, alter the style, and change the layout for the better. The cost of a room remodel depends on the function and how you want to reconfigure it. Bathroom and kitchen remodels are some of the most common home improvement projects, as they can increase the property’s market value. The average cost of a bathroom remodel is $11,150, plus $1,100 to $2,200 to hire a contractor. Kitchen remodels cost roughly $25,850 on average, with an additional cost of $2,600 to $5,200 for a contractor.
Building a Deck
A deck is a beautiful home addition that gives you extra livable space to entertain or relax. Plus, a deck can significantly increase the resale value of your property. The average cost to build a deck is $7,750. Hiring a general contractor may require an extra $775 to $1,500.
Building a Garage
Your garage is a vital storage room that protects vehicles and other valuables. But you can use a garage for practically any purpose, such as an exercise room. Renovating a garage can add extra space and better protection against water and debris damage. The average cost of building a new garage is roughly $27,500, with an additional $2,750 to $5,500 to work with a contractor.
Renovation Loan Options To Build Your Dream Home
There are various loan options available if you need a renovation loan. The best choice for you depends on your desired loan amount, preferred repayment terms, and credit background. Read about some of the various renovation loans you can apply for.
Refinance Your Existing Mortgage Loan
If you already have a traditional mortgage loan, know that you can refinance to get the money necessary for home renovations. You can use your home equity as leverage to get a cash-out refinance. A cash-out refinance allows homeowners to take out a larger mortgage loan and receive the difference in a lump sum to pay for renovations.
The downside of a cash-out refinance is that you will end up owing more money, and you will once again have to pay closing costs. Your tax liability may also increase, so ensure you speak with an accountant to determine if refinancing is the best loan option. If you need to fix your credit score because it has gone down since you obtained the mortgage, know that you may not qualify for a refinance.
Apply for a Home Equity Loan
A traditional home equity loan is essentially a second mortgage loan. Homeowners can use the equity in their homes as collateral to get a renovation loan. The loan amounts are relatively high for home equity loans. Still, the amount you are eligible to receive depends on your existing equity, credit score, and income.
Home equity loans can help you afford expensive home renovations. Getting a substantial loan can be challenging, with a bad credit score. But while there are guaranteed home equity loans for bad credit, they come with super high-interest rates. If you get a home equity loan offer, keep in mind that you need to cover closing costs. You also risk losing your home in the event of unforeseen financial difficulties.
Use a Home Equity Line of Credit (HELOC)
A Home equity line of credit (HELOC) allows homeowners to use their equity as collateral to get money for renovations. You can borrow smaller amounts than a traditional home equity loan to avoid borrowing more than you need. The interest rate is typically variable, so there is some financial risk. Some monthly payments may be higher than others, so you could end up missing a payment due to increased payments. However, you only pay interest on the amount you borrow, not the credit line. In addition, you risk losing your house if you default.
Get a Secured or Unsecured Personal Loan
Personal loans offer large lump sums of money borrowers can use for home renovations and other expenses. Borrowers typically receive a fixed interest rate and monthly payment. Lenders offer online quick cash loans you can start spending in as little as one business day. Personal loan qualification depends on a person’s credit score and income. You can still get a sizeable unsecured loan if you have bad credit. Interest rates are generally decent, and you can get an extended repayment length to avoid high monthly payments.
Use an FHA 203(K) Loan
An FHA 203(K) loan is a type of government loan borrowers can use to buy or renovate a home. While similar to the Fannie Mae HomeStyle loan, an FHA 203(K) loan is backed by the Federal Housing Administration (FHA) and offers more flexible qualification requirements. You could be eligible despite a low credit score and a small down payment. However, government loans require private mortgage insurance, and the application process can take a lot of time.
How To Increase Chances of Renovation Loan Approval?
If you have a low credit score, you may worry about your chances of qualification for renovation loans. However, there are steps you can take to improve your eligibility status. Just because you have low credit doesn’t mean you have to forego renovating your home.
Applying with a co-signer can help you secure a renovation loan. If your co-signer has an excellent credit history, you can lower the lending risk of your application. Using a second party can increase your chances of approval and help you get lower interest rates.
Using collateral to secure a loan can also increase your chances of getting approval. Although using collateral is risky because an unforeseen financial event can occur, and you may fall behind on payments. Many renovation loans use your home equity as collateral, which means you have to risk losing your home to get money for renovations. Consider your preferred level of financial risk and if you are willing to put your house on the line.
There are also renovation loan options specifically for individuals with lower FICO scores. If you have a bad credit score, you can search for bad credit loan options, such as low-interest personal loans for bad credit. There are financial options for just about anyone, so take the time to compare loan options.
The Bottom Line
You can use different types of renovation loans to repair or modify your home. Renovations require a lot of money, but financing options are available to help you build your dream home.
A renovation loan can help you complete minor or large-scale projects. Home additions and outdoor areas are the most costly renovation options, as they are major construction projects. The cost of room remodels can also be relatively high, but the price depends on the labor, materials, and supplies. If you need a sizeable renovation loan to afford renovation costs, know that your options are vast!
References:
How Much Do General Contractors Charge?│HomeAdvisor
203(K) Rehab Mortgage Insurance│U.S. Department of Housing and Urban Development
