The first thing to consider before deciding to finance a home renovation is knowing your budget and the project cost. Knowing these two pieces of information will help to determine how much you need to borrow. Then, you’ll have to determine how you’ll pay it back.
Borrowing money to fund your home renovation is just like borrowing money to purchase a home. You need to be ready with a plan on paying the ongoing debt services until it’s fully paid off.
Determine the home renovation costs
The cost of a home renovation can be significant, but it can be a worthy investment. You’ll need to prioritize the renovations costs for areas that are known to increase the property value, such as the kitchen area, bathroom(s), and basement.
The styles and market preferences may change, but any renovation you make to increase the living space and make the house more liveable will like improve the property value. If you plan to finance the entire process, consider the borrowing costs to make sure you can carry the debt burden without going to default. The best approach is to prepare with contingencies of unexpected home renovations costs. Make sure you have a detailed budget in your project plan that includes the contractor’s estimate plus a multiplier for contingencies.
How to finance a home renovation project
The best source of financing for your home renovation project is probably your current mortgage lender. They already have your mortgage and it is easier to ask for a second mortgage from the same lender (assuming there is enough equity in the property for a second mortgage).
There are two types of financing available for your home renovation, namely:
- Second mortgage, or
- Home Equity Line of Credit (HELOC)
Each financing type has its own pros and cons, which you want to consider to make sure your home renovation project does not break your budget.
How to find the best financing source for home renovation
Your home renovation financing can come from banks, credit unions, and equity lending institutions.
Each of the sources typically has competitive interest rates and lending terms. This depends a lot on the scope of the renovation project, property location, property type, and your financial strength as a borrower. These lenders are competing to earn your business, especially when you can show that you have been diligent in paying mortgage payments on time and have a stable source of income to sustain the debt services.
Sifting and comparing the different offers can be a time-consuming process. It is recommended that you work with a licensed mortgage broker to help you find competitive offers. Having a mortgage broker as your single point of contact simplifies your shopping process. You can express your preferences and your mortgage broker will work for you to negotiate and search for the best financing offers.
Frequently asked questions on mortgage financing for home renovations
Can you add renovation costs into a mortgage?
You can add renovation costs into your mortgage if you choose a Purchase Plus Improvement program at the time you buy the property. It’s an exceptional product that is offered at the time when you purchase the property.
This is conditional that your debt-to-income ratio stays within the lending limit after including the projected renovation costs.
Your licensed mortgage broker will be able to shop the best Purchase Plus Improvements product for your situation.
Can you mortgage house renovations?
If you already own your house and you are looking to mortgage the house renovation costs, you can do so with a second mortgage loan or a Home Equity Line of Credit (HELOC) behind the first mortgage.
This can be arranged with your current mortgage company or a new lender as a second mortgage.
The total debt typically cannot exceed 80% of the property’s appraised value. On an exception basis, you can qualify for up to 90% of the appraised value with alternate equity lenders.
How do you qualify for a rehab loan?
Obtaining a rehab loan requires that you have a renovation plan and quotes from contractors for the projected renovation costs. Mortgage lenders will want to know your experience in seeing renovation projects to completion and among other financial qualifications.
Similar to a regular purchase mortgage loan, as a borrower, you will need to produce financial statements to support your ability in carrying the debt services. In addition to that, lenders will check for the property location, appraised value, market value, and a few other qualifications factors about the property itself.
A licensed mortgage broker who is experienced in property rehab projects will know which lenders are the most suitable for your project.
Work with Matrix Mortgage Global
Matrix Mortgage Global (Lic. #11108) has access to over 100 different lenders. You have access to a wide range of lending partners who are ready to offer you various mortgage solutions, including mortgage renewals, refinancing, second mortgages, home equity loans, bridge loans, and other specialized mortgage products.
Jermaine Hinds, Mortgage Broker Offers Personalized Solutions for Home Buyers and Homeowners
Jermaine Hinds, Mortgage Broker believes in delivering results to clients with their best rate and solutions possible. He has built his reputation around helping people and getting them mortgage financing that fits their situations for the long term. The collective knowledge and experience from Jermaine and his team will help you achieve generational wealth through real estate.
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Jermaine Hinds - Mortgage Broker | Matrix Mortgage Global
