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Home Improvements
Turn Average Homes into Dreams Come True
by Mical Johnson
If you’re thinking about taking out a home improvement
loan, there are several options to consider. First and
foremost, your mortgage consultant needs to know why
you want a home improvement loan. Here are some factors
to take into consideration.
•How long have you been in the home?
•Will the improvements increase the property value?
•Are you making improvements to increase energy
efficiency?
•Will improvements be made in one fell swoop, or
in stages?
•What is the current outstanding balance on your
mortgage?
•What is the appraised value of the home?
•How much will the improvements cost?
•What improvements will be tax deductible?
•Do you have other revolving debt that you would
like to pay off at the same time?
•Are you making improvements because you plan to
sell the property?
The New Tract Home Blues
Buyers of newly-built homes are often tapped out after
making the initial down payment and closing costs, including
upgrades to amenities and the inevitable need for new
furniture. Shortly thereafter, they realize they’d
like to make additional improvements to really have
the home of their dreams.
If you’re planning on putting down roots (pardon
the pun), landscaping may be in order. The developer
may have been kind enough to make the front yard a perky
green, but if the back yard is a disturbing brown color
sparse with weeds, you may be entertaining the vision
of a pool or deck.
Look into the option of a Home Improvement Loan with
a fixed interest rate as a 2nd Trust Deed. This type
of loan does not require you to have equity built up
in the existing mortgage. The maximum loan amount could
go as high as 125% of the current appraised value of
the home, and you can make the improvements yourself
or go the extra mile and hire a contractor if the job
requires architectural design, permits and inspections.
The Major Overhaul
If you have built up equity in your home and are geared
up for some major renovation, the Home Equity Line of
Credit (HELOC) is probably your best bet. This adjustable
loan allows you to use your equity as a line of credit,
so if you have improvements that are phased in over
time you can simply write a check when you need to pay
a bill.
It’s like a having a credit card with a much lower
financing rate. In fact, the HELOC can be used for any
reason at all – even paying off that credit card
debt. In most cases, this action turns that revolving
debt payment into a tax deductible payment with a lower
interest rate. The HELOC is generally a 2nd Trust Deed,
unless it is used to pay off and replace the 1st Trust
Deed.
A construction loan is an alternative to the HELOC for
borrowers who don’t want to use or don’t have
equity, and this type of financing can be used for construction
on an existing dwelling. The lender will ask a lot more
questions about what the borrower wants to do with the
money, and the home owner will need architectural designs,
permits and a licensed general contractor on board.
Construction loans are short-term loans that usually
require interest-only payments until completion of construction,
but the balance is due when construction is done. Most
often, that is managed up front by setting up construction-to-perm
financing. In this scenario, the loan is automatically
rolled over into permanent financing at a fixed rate
when construction is complete, and a rate-lock agreement
can be purchased to carry the borrower through that
period of construction.
Another option – depending on the value of your
home and local loan amount limitations – is the
FHA 203(k) Program. This financing is designed for the
purchase or refinance and rehabilitation of properties
that meet FHA guidelines. This is worth looking into
if you need to bring a property up to compliance standards,
finance eligible energy efficient improvements, or turn
a single-family owner occupied dwelling into a duplex
to accommodate Mom or Dad!
Just a Facelift, Please!
If you want to sell your home and you simply want to
improve the curb appeal, it makes sense to go with a
HELOC. Make sure you are aware of the current market
value of homes in your area to make sure you’re
not going over the limit on the fair market value of
your home. You’ll want to get a return on your
investment!
If you’ve had your home on the market too long
and have not been able to sell, you might want to make
some changes to give it a fresh new look and bring back
the passion you once had for your home. Your mortgage
consultant will help you weigh out your options for
financing based on your outstanding mortgage balance,
income and credit score.
Regardless of your reason for home improvement, make
sure you share your goals with your mortgage consultant.
He or she can walk you through the various loan options
and confer with your tax advisor to make sure you’re
getting the best deal possible.
About the Author
Mical Johnson is affiliated with Rock Financial, Inc.,
a Licensed Correspondent Mortgage Lender, Florida Department
of Finance. For free consultation and more information
about mortgage loan programs, visit Mr. Johnson website
at www.TampaMortgageGuy.com
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