The cost for home renovations can reach into the tens of thousands of dollars, which is often more than the average person has just sitting around in the bank. The good news is that you can expect to see a strong return on your investment once your home’s value soars. The downside is that you may need to jump through a few small hoops to get the process rolling. Using these tips to secure a loan for home renovations streamlines the process and allows you to begin focusing on building your dream home.
1- Establish a Strong Credit History
As a homeowner, you’ve likely already been through the process of applying for a loan. This time around, you’ll still be expected to demonstrate responsibility as a borrower. Taking a moment to check your credit score and do what it takes to make it higher increases the likelihood of getting approved.
2- Gather All Essential Documents
The road to getting a loan is paved with paperwork, but all of the gathering of documentation does help to make the process go smoother. Check with the lender to find out what you’ll need. Most lenders require proof of income, an assessment on the value of your home along with the construction plans for the renovations. However, this can vary according to the type of loan that you apply for and the lender’s specific requirements.
3- Consider a Home Equity Line of Credit (HELOC)
With this type of loan, you’ll use your house as collateral. Typically, you’ll be able to get approved for a HELOC if you already have a nice amount of equity in your home. HELOCs are a type of revolving credit that usually comes with variable interest rates. While the terms are often less favorable compared to other types of loans, most lenders allow for a generous 30-year repayment period. You’ll also have the option of being able to pull from it as various parts of the renovation come up, much like you would with a credit card.
4- Apply for a Home Equity Loan
This is another type of loan that uses the equity that you have in your house to establish a stronger financial standing. Since the equity in your house serves as proof that you’ll repay the loan, lenders are more likely to issue an approval for this type to people who may have other factors that make it harder to get approved, such as a lower credit score. These loans are usually paid out in a lump sum and have fixed interest rates.
5- Refinance Your Home
Back when you first bought your home, you might have been stuck with higher interest rates or a bigger monthly payment than you preferred. Now that you’ve been there awhile, you might be ready to refinance. During the refinancing process, you can work with a financial institution to do a cash-out refinance. This provides you with extra funding for renovating your home, and you’ll have the ability to also potentially benefit from a lower interest rate.
6- Know How Much to Borrow
Asking for too much money is a red flag that could get your loan delayed. Before you apply, make sure to get quotes and other information that helps you know exactly how much money you need to borrow. While it is smart to add some extra funds for cushioning in case problems arise, having the correct amount shows a lender that you’ve done your research.
Once you initiate the loan application process, it should go relatively smoothly. Make sure to watch for any follow-up requests from a lender, such as to submit addition documentation. Staying in communication helps you know when you get that approval faster, so that you can authorize the contractors to start the project.