Should You Refinance Your Home and Use the Money for Renovations?
Tuesday, July 25, 2017, 6:00 AM | Leave Comment
Renovating your home can make it more comfortable, convenient and valuable. However, it also costs more than most people can pay for out of pocket.
Some homeowners choose to save for months or even years to renovate their homes, while others take out personal loans in order to pay for the upgrades.
Another way homeowners frequently pay to renovate their homes is through refinancing the homes themselves. This method can free up a fairly large sum of money, but it also comes with some caveats.
Here are a few of the things you should keep in mind when deciding whether or not to use the extra money from refinancing your home to make improvements to it.
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How Long You Plan to Live There
At one time, homeowners bought properties with the fairly solid intention of living there for the remainder of their lives. Today, with more geographically flexible jobs and easier relocation, this is no longer the way most people approach home ownership.
If you plan on moving within the next 5-10 years, refinancing your home in order to renovate it likely won’t be a good financial move for you. The more you can pay off on your home now, the better off you will be when you sell it.
If, on the other hand, you’ve found a house that you plan to live in indefinitely, refinancing to renovate can be a very sensible decision.
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How Much Money Refinancing Will Free Up
Obviously, if the point of refinancing your home is to free up extra money for renovations, you want to make sure that doing so will actually yield enough money to meet your renovation needs.
For some people, refinancing for a lower monthly payment will give them enough extra disposable income to begin working on renovations.
In the case of larger renovation projects, however, a larger lump sum may be required. If this is the situation you are in, you may want to consider a cash-out refinancing arrangement.
In a cash-out refinance, you will refinance your mortgage for more than you previously owed and receive the difference as a single payment. While this will run up your debts, it’s an easy way to get the money you need for upgrading your home.
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Whether Your Credit Allows It
Just like getting a home loan, a certain level of credit is needed to refinance one. Generally, a score of 620 is considered the minimum for most refinancing agreements, though this can vary based on your lender and your particular situation.
If you’ve maintained a good credit history since originally purchasing your house, you should be able to refinance it with little difficulty.
However, if you’ve fallen prey to credit card, personal or medical debt, as so many people have, your credit score may not be high enough to facilitate the refinancing of your home.
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The Timing of Your Renovation
If you plan on using a home refinance loan to pay for your renovations, you should definitely be shopping around for the best deals on the cost of your upgrades and checking out real estate resources like Rules of Renovation. In this, timing is everything.
The best time to renovate your home is generally in the springtime, when many major brands will run specials on materials and installation costs.
The better a deal you can get on your renovation, the less of an impact you will need to have on your existing home loan.
Using refinancing to pay for renovations can be tricky, but it can also be a great way to customize your home exactly the way you want it.
As long as you fully consider whether or not refinancing makes good sense for your financial situation, there’s no good reason you shouldn’t refinance your home to upgrade and improve it.
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Anica Oaks is a Freelance writer and web enthusiast. Read some of her published work on her Google+ page.
