Best way to pay for a home additon/renovation??
Question: I think we’re going to have a 2 story addition built to our house and possibly finish the basement. My understanding is that as far as financing is concerned there are 2 ways to go. We could get a home equity loan or line of credit or we could do a refinance our mortgage with cashout. Any other way?
What are the plusses and minuses of each way? Also, do either of these ways allow the appraiser or the bank to take into consideration the final value of the house *after* the addition/renovation is complete? That would allow us to have more equity in our home and then potentially a larger loan.
Answer: Lots of other ways (cash, credit card, personal loans…), but those 3 are probably the best for the purpose. If you refinance and cash out, you will pay for the renovation for 30 years (or the life of the mortgage). However, if you are planning to refinance a high-cost mortgage anyhow, that may be a good option.
If you get a home equity loan or line of credit, you may opt for a shorter term with higher payments for the renovations, and get back to just the basic mortgage cost after that.
If you want a fixed amount for a single immediate purpose, the home equity loan is probably the way to go.
If you want flexibility in time, payments, and access to the $$, the HE line of credit is probably better.
In any case, the specific amount available and cost of each option depends on the lender. Shop around at several banks, credit unions, and/or mortgage brokers. Your credit union will likely have the lowest cost and best terms.
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Filed under: Home Equity Loan
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