Financing Home Remodeling as a Tool
Most people finance the purchase of their home with a long-term mortgage, spreading the payments over 15 or 30 years. A mortgage is a financial tool that provides a couple of benefits: It makes a new home affordable, and the interest paid on the mortgage may become a tax deduction.
Home mortgages are such a useful financial tool that very few pay cash for their home. Even for those that can, many financial advisers suggest that it’s better to use the flexibility of a mortgage than it is to tie up all of your available cash, which can often be invested for a higher return than the cost of the mortgage.
A remodeling project is a long-term investment in the value, convenience, and marketability of your home. As such, it makes sense to use the same type of financial tool – a mortgage – to help you make that investment. Using a second mortgage for your project provides several benefits. With a long-term mortgage, your payments are low, which means you can afford a larger project, or add options such as fencing or landscaping.
Financing means you don’t have to deplete your savings account, and can have cash available for emergencies or other uses. And because the loan is secured by your property, the interest on the loan will most likely be tax-deductible. (You should always consult your tax advisor regarding deductibility.)
Looking for a Lender
It’s very important to find a lender who is familiar with home improvement lending. Financing an improvement requires some specialized knowledge of the remodeling process. Among the things you should look for is a lender that:
Is ready to move quickly. When you want to start your project, you don’t want to wait two or three weeks for your financing. Find a lender that can get you a quick approval, and who knows how to expedite that paperwork.
Doesn’t require an appraisal. A full property appraisal can take time, and can add hundreds of dollars in costs to your loan. Find a lender that will determine your home’s value by its purchase price, or from a recent tax assessment.
Doesn’t require equity or a down payment. Some lenders want you to have built up the equity in your home, or require you to put down a substantial down payment. Lenders who specialize in home improvements, however, understand that the project increases the value of your home, and therefore will not require equity or a down payment.
Offers flexibility. Each home improvement project is unique, and every homeowner’s situation is unique. Some people want a short loan term; others need a longer term with lower payments. Some people just want to pay for the project, others may want to use the loan to pay off some other bills as well and increase their cash flow. Make certain your lender can tailor your loan to fit your particular needs.