What you should know about financing a fixer-upper.
According to CoreLogic®, home prices nationwide saw a year-over-year increase of 17.2% in June 2021 and a month-over-month increase of 2.3%, when comparing May 2021 to June 2021. As home prices have risen and available home inventory remains low, many existing and potential new homeowners are prioritizing geographic location with a willingness to renovate to achieve their dream home. Some homeowners may be staying put and looking to renovate their existing home, while others are considering new home purchases that may require renovation.
If this is you, consider these tips before you begin the process of renovating your current home or purchasing a new home that you plan to renovate:
1. Attend the inspection if purchasing the home.
If you are purchasing a new home, it is always a good idea to attend the inspection with the inspector. This will give you a good picture of what may need attention, either immediately or in the years to come, when deciding what to take on regarding the renovation process.
2. Pad your budget and then some.
Many homeowners underestimate the cost of their renovation. Even if you’ve crossed all your t’s and dotted all your i’s, when you are renovating an existing property you never know what challenges may arise. When developing your budget, consider padding it by an extra 15-20% to plan for the unexpected surprises that may be lurking in your renovation.
3. What type of renovation are your dreaming of?
Bathroom renovation or adding a room? Depending on the size and scope of your project, you likely have several different financing options to consider, each with their own distinct advantages.
4. Decide if the project will be a do-it-yourself (D.I.Y.) or if you’ll be hiring it out.
If the project is more of a D.I.Y., you might want to take a look at utilizing the equity you’ve built up in the home and consider doing a cash-out refinance or taking out a home equity loan. For larger renovations, which include expanding your kitchen, a renovation mortgage may be the best way to go. Our expert loan officers can review the benefits of each option and help you determine which loan is the best for you.
5. Consider your financing options.
There are many options to consider when determining how to finance your fixer-upper. Depending on the size and significance of the renovations you are considering, looking into all of the options will help get the most out of your renovation dollars.
• Renovation Mortgage.
If you found the home you love or you already own it but are looking to do a major renovation, we have multiple mortgage options to consider. Our renovation mortgage provides up to 97%* financing on your home and up to 75% of the “after completion” appraised value of the home. If you go this route, you will need to secure a certified builder to complete the renovations. For those who may want to do all or some of the renovation work, a home equity option should be considered.
• Put the equity you have built up in your home to work by considering:
1. Cash–out refinance.
Mortgage rates are at historic lows. With home values on the rise, it might make sense to consider refinancing to a lower rate and pulling out the equity in your home, using this extra cash to pay for your renovation.
2. Home Equity Line of Credit or Home Equity Fixed Loan.**
If you own your home and you want to make updates as you go, a Home Equity Line of Credit (“HELOC”) might make sense. A HELOC can work like a credit card – but you’re borrowing against your home’s equity at a much, much lower interest rate. You are able to borrow money month-by-month, and as you repay the balance, the funds become available again. If you have your project scope and cost pre-determined, a Home Equity Fixed Loan might be the way to go, as you can borrow one lump sum of money for a set purpose.
Ready to get started? Contact one of our friendly loan officers at (844) 754-6280 or visit LMCU.org/Mortgage to get pre-qualified before you begin your house hunting and talk through the best financing options for you.
When deciding which renovations are worth it, here are four renovations that have yielded a great return on average in 2021 according to the 2021 Cost vs. Value report from Zonda Media,*** a housing market research and analytics firm:
1. Garage door replacement showed a 94% return
2. Manufactured stone veneer showed a 92% return
3. Kitchen remodel costs recouped on average 72%
4. Adding a back deck resulted in a 66% return for wood and 63% for vinyl
* For well-qualified borrowers. ** Home Equity loans are available for properties located in Michigan and limited counties in Florida. *** 2021 Cost vs. Value Report, Zonda Media. www.remodeling.hw.net/cost-vs-value/2021/.