What Type of Loan Is Best For Home Improvements?

by Jessica Brita-Segyde

Are you planning a major home improvement this year? Good call! Your home may be your biggest investment, plus you spend most of your time there. As such, home improvements benefit you in two ways: First, you will probably recuperate a percentage of the cost immediately (because the increased value of your real estate will increase your net worth). Second, a home improvement is an investment that you get to live in and enjoy.

Now, for the logistics. Home improvements can get pricey, especially when you customize and throw in a few upgrades. Average costs for bathroom upgrades, kitchen remodels, room additions, and other common projects can fluctuate based on supply costs. A recent scarcity of skilled labor is also a reality, so plan to spend more on labor and/or to do some of the work yourself. According to the National Association of Realtors’ Home Remodeling Impact Survey from 2019, homeowners spend around $400 Billion each year on remodel jobs. Realtors surveyed for the report estimated that typical updates like a kitchen remodel, bathroom remodel, and master suite upgrade return at least fifty percent of the cost to the homeowner in increased marketable value of the property. Basement conversions from unfinished to finished living spaces offer an even higher rate of return at sixty-four percent. Exterior upgrades like replacement windows can offer an immediate return value of over seventy percent of the amount invested in the project.

Do you want in on the action? Following are a few ways you can finance the next big phase of your home life.

Cash-Out Refinance

This type of mortgage offers a one-time influx of cash from the equity in your home. The current real estate market could offer a lucrative opportunity to obtain cash from your home’s value. If you obtained your current mortgage when rates were higher and if your home’s value has appreciated in recent years, a cash-out refinance could benefit your bottom line. One perk to a cash-out refinance is that the proceeds can be used to pay for things in addition to your remodel project or to pay off higher-interest debt. Contact one of the friendly loan professionals at Ruoff to see if you qualify.

Renovation Refinance

A renovation refinance is similar to a cash-out refinance in that it draws from your home’s equity. However, these loan products do have two significant differences. First, all the proceeds from a renovation refinance are earmarked for home improvements, repair, or renovation. Second, the appraised value of your home is based on its future value. This way, you can borrow an amount based on what your home will be worth when the updates have been completed. Renovation loans can be conventional, FHA, or VA. An added benefit to for some borrowers is that renovation loans focus heavily on collateral as an underwriting factor and therefore focus less on credit score. Ruoff Mortgage offers renovation refinances as well as renovation purchase loans. Visit https://www.ruoff.com/loan-options/renovation to learn more.

Home Equity Line of Credit

As with a cash-out refinance, a home equity line of credit (HELOC) draws value from your home’s equity. It differs in that you will have access to a line of credit and can draw from those funds intermittently.

Unsecured Loan

An unsecured loan is also called a “signature loan.” Instead of providing collateral, the underwriter relies on your creditworthiness, character, and capacity (income) when deciding whether to offer a loan. Unsecured loans usually come with higher interest rates but could be an option if you have not built any equity in your home yet.

Do you have questions or want to see if you qualify for a refinance? Contact the loan team at Ruoff to get started!

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