Home Equity Loan For Home Improvement – Home Equity Loan vs. Line of Credit Get the financing you need by using the equity in your home.
Whether it’s home improvements, debt consolidation, or an unexpected expense – now is the perfect time to unlock your home equity at a very low rate!
Home Equity Loan For Home Improvement
Even if you don’t currently need cash, an open-ended home equity line of credit* is a wise move. When you get a home equity line of credit, you have access to the ability to withdraw money for a period of time, whenever you want. You only pay interest on the amount you borrow. You can borrow money, then pay back the borrowed money, and borrow again against the line of credit.
How To Finance A Home Remodel
*Must own residence, be insured and insured by a primary single-family residence (including flood insurance if required). The minimum line amount is $10,000 and the maximum line amount is $250,000. Current HELOC members must increase their limit to $5,000 to qualify. You may be required to pay certain fees which are usually up to $410. If an appraisal is required there is an additional cost of at least $425 at the borrower’s expense. There are no annual fees or early termination fees. Offer subject to credit approval. Consumer accounts only. This offer is available for Nebraska and Iowa properties within Cobalt Credit Union’s lending area. Interest may be tax deductible, consult your tax advisor regarding your situation. Additional limitations may apply. Contact a Cobalt Credit Union representative for complete offer details. Federally insured by NCUA. Equal housing lenders.
If you need a specific amount, a home equity loan may be for you. A home equity loan allows you to tap into your home’s built-up equity, which is the difference between the amount your home can sell for and the amount you still owe. Home renovations can be expensive. But the good news is that you don’t have to pay out of pocket. A home improvement loan lets you finance the cost of renovations and repairs to your home.
Special rehabilitation loans such as FHA 203(k) mortgages exist specifically to finance home renovation projects. And there are other mortgages — home equity loans and HELOCs — that can provide cash for home remodeling or another purpose.
So, what is the best home improvement loan? It depends on your needs. Here’s what you should know.
Home Equity Loan Or Line Of Credit: Which Is Right For You?
A home equity loan (HEL) allows you to borrow against the equity built up in your home. Your equity is calculated by evaluating the value of your home and subtracting the outstanding balance on your current mortgage loan.
Unlike a cash-out refinance, a home equity loan does not pay off your existing mortgage. If you already have a mortgage, you will continue to make monthly payments while repaying your new home equity loan.
A home equity loan is “disbursed upfront as a single payment. It’s similar to a second mortgage,” says Bruce Allian, realtor and real estate attorney.
With a home equity loan, your home is used as collateral. This means lenders can offer lower rates because the loan is secured against the property. A low, fixed interest rate makes a home equity loan a good option if you need to borrow a large amount.
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Remember that you’ll likely pay between 2% and 5% of the loan balance in closing costs for your home equity loan. So make sure that the amount you borrow makes the added cost worth it.
As a bonus, “a home equity loan or HELOC can also be tax-deductible,” says Doug Lever, Tropical Financial Credit Union, member with the FDIC. “Check with your CPA or tax advisor to make sure.”
A home equity line of credit (HELOC) is another great way to borrow against your home equity without refinancing. A HELOC is similar to a home equity loan but works like a credit card. You can borrow from it up to a pre-approved limit, pay it back, and borrow from it again.
Another difference between home equity loans and HELOCs is that HELOC interest rates are adjustable; They may rise and fall over the term of the loan. But the interest is only on your outstanding HELOC balance — the amount you actually borrowed — and not on the entire line of credit.
Using Home Equity For Home Improvement
You can only borrow a fraction of your maximum loan amount at any one time, which means your payment and interest costs will be lower.
A HELOC may be a better option than a home equity loan if you have some less expensive or long-term remodeling projects to finance on an ongoing basis.
By the end of the term, “the loan must be paid off in full. Or the HELOC can turn into an amortizing loan,” Elian says. “Note that the lender may be allowed to change the terms during the life of the loan. This can reduce the amount you can borrow if, for example, your credit goes down.”
Still, “HELOCs offer flexibility. You don’t need to withdraw money unless you need it. And the line of credit is available for up to 10 years,” Lever says.
How To Pay For Home Renovations
Another popular way to get money for a home remodeling project is a cash-out refinance. With this option, you refinance to a new mortgage loan that owes more than you currently owe. Then you pay off your current mortgage and keep the remaining cash.
The money you get from a cash-out refinance comes from your home equity. It can be used to fund home improvement projects such as finishing a basement or a kitchen remodel. However, there are no rules specifying what the funds should be applied for.
A cash-out refinance is usually the best home improvement loan when you can lower your mortgage rate and get cash out. This only works when the current market rates are lower than your current rate.
You may also be able to adjust the length of the term to pay off your home sooner. For example, let’s say you had 20 years left on your 30-year loan. Your cash-out refinance could be a 15-year loan, which means you’re scheduled to pay off your home five years in advance.
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So, how do you know if you should use cash-out refinance? Start by comparing costs over the life of the loan, including closing costs. This means looking at the total cost of the new loan versus the cost of keeping your current mortgage for its life.
Keep in mind that cash-out refinances have higher closing costs — and they apply to the entire loan amount, not just the cash-back. So you’ll likely need to find an interest rate that’s significantly lower than your current rate to make this strategy worthwhile.
With the FHA 203(k) program, you don’t have to apply for two different loans or pay closing costs twice. Instead, when you buy a home you finance your home purchase and home improvements at the same time.
FHA 203(k) rehab loans are great when you’re buying a fixer-upper and know you’ll need funding for immediate home improvement projects. These loans are backed by the government, which means you’ll get special benefits — like a lower down payment and the ability to apply with a less-than-perfect credit profile.
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On the other hand, this type of loan may take longer to close. “FHA 203(k) loans can be difficult to get taken out and approved,” says John Mayer, Mortgage Reports loan expert and licensed MLO. If you go this route, it’s important to choose a lender and loan officer familiar with the 203(k) process.
If you don’t have enough home equity to borrow, a personal loan is another way to finance home improvements.
Since a personal loan is unsecured, you won’t use your home as collateral. This means these loans can be obtained much faster than HELOCs or home equity lines of credit. In some cases, you may be able to receive funding the next business day or the same day.
Personal loans can have adjustable or fixed rates but they are usually higher than for a home equity loan or HELOC. That said, if you have excellent or just good credit, you can likely get an affordable rate.
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The repayment period for a personal loan is less flexible, often two to five years. And you’ll likely pay closing costs, too.
Those terms may not all be compatible. But personal loans are more accessible to some borrowers than HELOCs or home equity loans. If you don’t have much equity in your home to borrow, a personal loan may be an option to pay for home renovations.
These loans also make sense for financing emergency home repairs — if your water heater or HVAC system must be replaced immediately. Still, Meyer cautions that personal loans are the “least advisable” option for homeowners.
You can also finance some or all of your remodeling costs with plastic. This is the fastest and easiest financing option for a home improvement project. Eventually, you won’t even need to complete a loan application.
Apply For A Home Loan
But because home improvements often cost thousands of dollars, you need to be approved for a higher credit limit. or,
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