Are you remodelling your home? Perhaps you’ve just invested in a new house but it’s a bit of a fixer upper. While a house renovation is exciting, it takes extensive planning, especially if you’re renovating on a budget. It’s inevitable that you’ll need to shell out some cash for this, however, there are financing options available for homeowners. Check out the financing options below to find the right solution for you.
1. Evaluate Your Funds
Once you’ve completed a rough breakdown of the home renos you want, it’s time to look at your cash flow. Before finalizing any plans, it’s crucial to know where you stand financially. This gives you the opportunity to scale back or adjust before it’s too late.
When planning your budget, you may discover you have enough cash on hand to cover the job. No need to gain interest on a home renovation loan, just pay out of pocket and enjoy your new digs. However, no matter what your financial situation may be, it’s always wise to leave a little cushioning for unforeseen costs.
2. Use Your Home Loan to Finance Renovations
Say you’re buying a fixer upper and are exploring mortgage options. You can assess the costs of the renovations and budget this into your loan.
For example, you’re buying a $500,000 home that needs $30,000 worth of work for the kitchen and basement renovation. You take out a loan of $450,000 to cover the mortgage and renovations, minus what you have saved for the down payment.
As mortgage loans tend to have a longer repayment period, typically up to 30 years, this allows you to gradually pay for the renovations. Furthermore, the interest rates on mortgages are typically lower than other types of financing. This way, you don’t need to dip into your savings and can start the house renovations right away.
To move forward with this, you’ll need quotes from contractors before applying for a mortgage. Additionally, as you’re receiving a fixed amount, you’ll want to ensure you don’t exceed your budget, otherwise you’ll be paying out of pocket. Lastly, you may be subject to an inspection from your financial institution as proof of work so be sure to keep your receipts and keep documentation of the renovations.
3. Use Your Home Equity
A home equity line of credit (HELOC) is a loan that’s structured similarly to a standard line of credit but is based on your home’s market value. First, you’ll want to evaluate the equity of your home. The equity is calculated by deducting what you currently owe on your mortgage from the market value of your property.
Let’s say you’re still working with that home from the example above. The market value of this house is $500,000 and you owe $350,000 on your mortgage. This leaves your equity stake at $150,000. As you’re able to borrow up to 80% of your home’s value, you can borrow up to $400,000. However, when you deduct the $350,000 you still owe, you’re left with $50,000 in equity.
Speak to your financial specialist about taking out a HELOC. It can be a great option to cover home renovations if you’re not wanting to dip into your RRSP.
4. Refinance Your Mortgage
Are you dreaming of Vancouver basement suite renovations but want to avoid the high interest rates of typical loans? Another way to use your equity to cover home renovations is to refinance your mortgage. This allows you to renegotiate the terms of your mortgage to secure a loan similar to your primary mortgage.
Rather than taking out a secondary loan like a HELOC, refinancing comes with fixed interest rates spread over a longer period. Therefore, you can make smaller payments for the duration of the loan with minimal interest gain.
While this is a great option if you have a strong credit score and considerable home equity, homeowners outside of this may face higher interest rates. Speak with a financial advisor to determine if refinancing your mortgage is the right solution for you.
5. Look For Government Financial Assistance and Tax Credits
You may be able to lower your costs depending on the type of renovation you’re completing. Certain eco-friendly house renovations can be partially or fully covered. Furthermore, a variety of renos qualify for tax credits depending on the purpose. Explore your eligibility for financial assistance and credits to save some money while redoing your home!
Is your kitchen outdated? Are you looking to transform your ground floor into a livable suite through basement renovations? No matter what your financial position is, it’s important to team up with a trustworthy and experienced contracting company. At Craftsman Contracting, we can bring your vision to life while adhering to your budget. Reach out today to request a quote on renovation costs.