How to Make That Major Home Remodel Affordable

Giving your home a makeover is like moving into brand new digs. A huge kitchen island, a great room extension with vaulted ceilings, a real bathroom en suite – images of the improvements are probably dancing in your head. But a big Reno costs a lot of money, and you may need to get a loan to make your dreams come true.

Figuring out the best ways to borrow money can be daunting. That is why we turned to the pros for advice. Whether you’re looking for a complete overhaul or a single new space, here’s how to make your best plans happen with ease.

Find out Reno prices in your area

The cost of ordinary renovations can vary widely depending on where you live and the benefits you take advantage of. Even so, there are still certain variables that remain constant.

“The size of the house and the value of the house in your neighborhood usually determine the general price of the renovation,” says Erin Stetzer, owner and president of Stetzer Builders. “Although you don’t want to go into a home renovation just with a view to future saleability, this is an important factor.”

As a rule, kitchens and bathrooms are the most expensive rooms to renovate. “The rule of thumb is to count the components of the room to be renovated: plumbing for wash basins, bathtubs and toilets or electrical systems for sockets, lights, fans, etc. Then you determine the number of craftsmen that are required. Make each of these components. The more components and craftsmen, the more expensive the room, ”says Stetzer.

For general guidance on estimating the cost of typical home renovation projects in your area, as well as the average return on investment (ROI), see the Cost versus 2021 report, broken down by region. For example, the national average for a minor kitchen renovation is around $ 26,000 and gives an ROI of about 72 percent, while something as simple as replacing a garage door can cost less than $ 4,000 and achieve nearly 94 percent ROI.

Know your loan options

A permanent home renovation loan is when the homeowner borrows against the value of the property. “We refinance all of the existing mortgages on the property and bundle everything into one loan,” said Ian B. MacDonald, Vice President and Mortgage Officer of Regions Bank.

“What’s nice about it? [a renovation perm loan] is that we use today’s interest rate market for the loan (i.e. not increase depending on the interest rate) and the borrower only pays interest for the services used during the construction / renovation phase, ”says MacDonald. The interest rate can be higher or lower than your current mortgage “When the work is done, it will be converted into a fully amortizing loan,” MacDonald adds. An amortized loan has scheduled, periodic payments that count towards both the loan amount and accrued interest.

Refinancing your mortgage is another way to secure the funds for your home renovation. When you refinance your mortgage at a lower interest rate, you lower your mortgage payments every month, which means you have more cash. A cash-out refinance essentially refinances your mortgage for more than your previous mortgage balance, and the difference is paid to you in cash.

Then there are home equity lines of credit (HELOC) and home equity loans (HELOAN). A HELOC is a line of credit that your home uses as collateral, while a home equity loan is a second loan that is taken out on the equity of your property.

“All options have their advantages, and it really comes down to the wants, needs, and particular situation of the borrower,” says MacDonald.

Understand your needs

“Lenders usually ask for architectural plans and technical plans as well as a budget and construction contract,” says Stetzer. You will also need a specification book that lists all of the components that will be built into the house – steel windows versus aluminum windows, the appliances, plumbing, etc. appraisal process. The book helps the lender understand where the budget is going, ”she says.

Lenders also ensure that you are qualified for a loan by reviewing your professional history / income, creditworthiness, assets, and property holdings, and evaluating the collateral on the loan.

“Just like when buying a home, we want to make sure the borrower has an opportunity to repay it,” says MacDonald. Regions Bank then calculates the amount it borrows from the upgraded value of the property or the total price of the package (this is the house if it is less than 12 months old) plus the cost of remodeling for a permanent loan for renovation .

Get a quote

Knowing what to expect in terms of financial commitment is critical to getting the process started. So it is important to be clear about what you want. “It is the client’s job to translate the homeowner’s information about his wishes and ideas about the finished product into a specific number,” says Stetzer.

Also think about what could go wrong. It is better to overestimate the cost by budgeting unforeseen costs. In this way, there are no unexpected costs and can even be under budget if everything goes according to plan, says Stetzer.

To find the loan that best fits your lifestyle, visit Regions.com for advice and tools, or make an appointment with one of their professionals today.

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