There's plenty to consider when planning a remodeling project.
The key point to understand when thinking about remodeling a home is that remodeling requires significant energy and work. Therefore, you may want to ensure you're making the right decision about remodeling your current home, instead of moving and upgrading to another house.
The first consideration may be decided by the things you can’t change about your current home: 1) school district; 2) your commute time to work; 3) access to retail; 4) the amount of traffic on your street; and 5) the overall quality of life and value of the neighborhood. If you would assess these considerations in a positive manner, remodeling likely makes sense.
Before we provide you information on how to pay for your remodeling project, here are a few home remodeling guidelines to consider:
Let your neighborhood be your guide.
Are you planning on moving in the next 10 years? If so, maintain the level of improvements in line with other houses.
Hire the right contractor.
Get recommendations from your friends and family and also contact the National Association of the Remodeling Industry for members in your area and ask the local Better Business Bureau for suggestions.
Complete a floor plan before starting and establish your budget.
This will help you address problems before the reconstruction and ensure that your home renovation idea meets building code requirements.
The best ROI.
Keep your ROI or return on investment top-of-mind. Kitchen and baths get the most ROI. Why? Because they are the most used rooms in a house. Gaining more living space such as a finished basement or adding a deck or patio typically also brings greater returns.
Less costly remodeling route.
Affordability might prevent you from considering a major remodel. You have other options and you can still boost the value of your home. Adding crown molding, interior painting, installing a new garage door or a new front door, may make an impact and add value.
So now you may ask "How do I pay for this?" There's the possibility for a new loan. Or maybe you earmarked savings for this project. Maybe you received a gift from your parents or family. However, another option is refinancing your current mortgage and cashing out equity in your home.
With cash-out refinancing, you refinance your mortgage for more than you currently owe, then put the difference aside for other needs such as your remodeling project. Here's an example: Let's say you still owe $80,000 on a $150,000 house, and you want a lower interest rate. You also want $20,000 for remodeling or home improvements. You can refinance the mortgage for $100,000. Now you have $20,000 for that new kitchen.
Keep in mind that cash-out refinancing differs from a home equity loan:
A home equity loan is a separate loan on top of your first mortgage, while a cash-out refinance is a replacement of your first mortgage.
The interest rates on a cash-out refinancing are usually, but not always, lower than the interest rate on a home equity loan.
Typically, you pay closing costs when you refinance your mortgage, while you generally don't pay closing costs for a home equity loan.
Whatever the size of your remodeling project, just talk to us to learn about the benefits of cash-out refinance. We can help you based on your situation.