Tag Archive for: home equity loan

Advantages of a Home Equity Loan vs. HELOC

October 19, 2022
mortgage blog, heloc, home equity loan, preferred rate

Building equity in your home is one of the great advantages of being a homeowner and accessing that equity when you need it is even better.  So when it comes to home improvement and house repairs, what’s the best way to tap into your home equity? For homeowners who have seen a big jump in the value of their home over the past few years, you have some options.  This short article breaks down the benefits and drawbacks of using a Home Equity Loan vs. HELOC (Home Equity Line of Credit) for home repairs and renovations.

Whether you’re planning a big home renovation or planning your next family vacation, these pros and cons can help you decide the best way to access your home equity.

RELATED: How to finance a home renovation project with the FHA 203k loan

Home Equity Basics

Home equity is the financial difference between what you owe on your home (your mortgage balance) and the value of your home (based on a formal appraisal).  For example, if your current mortgage balance is $478k and the current market value of your home is $680k, then you’ve got a little over $200,000 in home equity.

When you want to access the equity in your home, most lenders will only approve up to 80% of your home’s value. This allows for market fluctuations in property value and lowers the risk of foreclosure in the eyes of the lender.  In the example above, 80% Loan-to-Value would be $544k, giving you potential access to $65k.

Home Equity for Home Renovations, Repairs, and Remodels

To decide if a home equity loan or home equity line of credit might be a good fit, it’s a good idea to figure out how you want to use the funds. A few popular updates are:

  • kitchen remodels
  • bathroom remodels
  • new roofing, siding, windows
  • major landscaping & backyard improvements
  • home office additions

Another thing to consider is adding an in-law unit or ADU to the property. In a neighborhood with limited space, adding livable space will increase the value of your home and boost the appraised value (which we blogged about here).

RELATED: Everything you need to know about home appraisals

Since both a home equity loan and a home equity line of credit are big financial commitments, take time to consider the value of the improvements you want to make or how else you might like to use the funds. Renovations don’t necessarily have to improve the value of your home but they will work to your benefit if they do. Both loans are designed to help maintain and improve the value of your home. Ideally, you want to increase your property value in the process. If you need to sell your house for an unexpected reason, you won’t be upside down when it comes to your mortgage.

Top Advantages of a Home Equity Loan

Home equity loans are almost always fixed-rate loans with set terms that include a fixed monthly payment and a fixed payment schedule. When you’re approved for a home equity loan, you get the full amount in one lump sum. Then you pay off the loan in fixed monthly payments for the entirety of your loan.

The loan terms are agreed upon when you get approved, so there are no surprises or changes in your payment schedule.

Highlights and Advantages:

  • Lower interest rate that is locked in for the life of the loan
  • Fixed monthly payments which make is easy to budget and plan
  • Lump sum all at once so you can start a big project right away
  • Use the funds for whatever you want
  • The interest on your home equity loan may be tax deductible

Worth noting: higher credit scores mean lower rates. Check for prepayment penalties in case you decide to pay it off sooner than scheduled, or if you might want to refinance later.

Top Advantages of a HELOC (Home Equity Line of Credit)

A home equity line of credit operates like a revolving credit account. Instead of having a set payment schedule and a fixed rate, HELOCs give you access to a line of credit with a maximum limit.  You can use the funds at any time and you don’t accrue any interest until you draw from the account.  HELOC’s have a set draw period (typically 10 years) and a variable APR which is based on the prime rate and market trends.

Main Benefits:

  • Access as much or as little money as you want to meet the needs of your projects
  • Interest only accrues when you access the funds, not to keep the account open
  • Repayment terms are flexible, pay it off and make minimum monthly payments
  • Use the funds for whatever you want
  • The interest on your HELOC may be tax deductible

Taking Action

If you’re thinking about tapping into your home equity, talk with a local mortgage advisor who can help you reach your financial goals. An experienced loan advisor can save you money and keep the process moving easy and stress-free. When it comes to saving money on your mortgage and tapping into your home equity, we can guide you through the process. Together, we can help you decide which path will save you the most money so you can reach your financial goals faster. Connect with a local mortgage advisor to get started. We’d love to help.

Best Upgrades to Increase the Value of Your Home

September 28, 2022
home value, preferred rate, mortgage blog

As mortgage rates surge, many homeowners are turning to home improvements and renovations. Home improvements and upgrades can bring new life to an older home, but they can also increase the value of your home substantially. Deciding to increase the value of your home is always a good move because it gives you more financial freedom down the road.

Whether you want to borrow against your home equity to invest in a second property, or prepare your home for sale, increasing the value of your home now can set you up for better returns later. And if this is your forever home, upgrades and renovations are a necessary part of homeownership.

That said, many home improvement projects could cost a bundle without increasing the value of your home. So it’s smart to do a bit of research and find out which upgrades are worth the effort when you want to increase the value of your home.

Even if you’re planning to relocate for work or a better lifestyle, updating your home will help you get the best price when it’s time to list your home for sale.

Whether you’re planning to relocate or stay put, here are the top 7 ways to increase the value of your home.

RELATED: How to finance a home renovation project with the FHA 203k loan

TOP 7 WAYS TO INCREASE THE VALUE OF YOUR HOME

1. Add square footage to your home.

Increasing the usable square footage of your home will directly improve your home’s value. Home appraisals evaluate the livable square footage of a home in addition to other comparables in the neighborhood (such as the number of bedrooms and acreage). Therefore, adding a bedroom or an office will automatically increase the value of your home by the added square footage.

Another thing to consider is adding an in-law unit or ADU to the property. In a neighborhood with limited space, adding livable space will increase the value of your home and boost the appraised value (which we blogged about here).

RELATED: Everything you need to know about home appraisals

2. Improve your home’s curb appeal.

Curb appeal doesn’t always translate to a higher home value in a formal appraisal. However, curb appeal has a huge effect on buyers when they visit a home for the first time. So when you compare a handful of homes with similar square footage in the same neighborhood, curb appeal pulls more buyers and generates higher interest. In short, strong curb appeal leads to better offers when you’re getting ready to sell your home.

Landscaping is the path to your front door. Make sure to tidy up the yard, plant some seasonal flowers, keep the grass maintained and freshen up any ground cover. Larger expenses might be fixing walkways or driveways or adding more substantial landscaping. The goal is to get a buyer to stop and shop!

3. Add a fresh coat of paint to your home’s interior and exterior.

Right along with curb appeal, giving your home a fresh coat of exterior paint will improve the perceived value and tell prospective buyers that your home is well-cared for and maintained. Move toward neutral colors that are current for the times and don’t forget your front door.

Interior paint is one of the lowest cost updates you can do to bring a big return. If you’re selling your home, you might need to lean neutral and put a pause on bold choices. Bold colors and personality are beautiful if you’re planning to stay! But for prospective buyers, the interior colors and paint should be welcoming and neutral—a home they can see updating with their own style.

Renovating a fixer-upper? The Fannie Mae Homestyle loan might be a good fit (which we blogged about here).

4. Remodel your kitchen with a modern take.

A kitchen remodel can be costly no matter how you slice it. Often, updating cabinets with a fresh coat of paint and new hardware can have a big impact. Next, update lighting fixtures and replace countertops if they’re worn or outdated.

A bigger remodel can be worth it for many homeowners, especially if you want to stay in your home for a long time. Consider updating your appliances for both aesthetics and energy efficiency. Flooring, countertops, and adding square footage are next on the list. There is a large range of costs vs. value when it comes to kitchen remodels, so work with your realtor if you’re getting ready to sell your home.

Minor kitchen remodels are expected to bring an 80% return, while major remodels have an estimated 48% return on the investment. The value will increase over time as equity builds, so consider this if you’re looking to sell quickly.

RELATED: Compare the benefits of a Home Equity Loan vs. a HELOC for a home renovation

5. Give your bathroom a fresh feel.

The bathroom is one of the most important spaces to consider if you want to increase the value of your home. The good news is that small changes can make a big difference. Consider a minor remodel, including fresh paint, updated hardware and lighting, or even DIY bath and shower updates. If you want to increase the value of your home, think about expanding your bathroom or adding updated features like a walk in shower or soaking tub.

For larger projects such as heated flooring and custom fixtures, most homeowners see a 52% return. As your equity grows, the impact will increase as well. Finally, an updated bathroom can increase interest and generate offers much faster. Updating the bathroom should be at the top of your list.

6. Make your home more energy efficient.

There are a lot of options to increase the value of your home and make it more energy-efficient. Consider installing a smart thermostat, improving insulation, and replacing old windows. Take notice of attic insulation and roofing to decide if updates are needed, as well as updating to energy-efficient appliances in your home. Upgrades will improve the comfort and efficiency of your home and also save on utility bills.

Consider adding energy-efficient technologies and safety features. “Smart” technologies are becoming more popular among buyers who are energy-conscious and value home security. Smart tech doesn’t always increase the value of your home for a mortgage refinance appraisal, but new buyers are typically willing to pay more for a modernized home.

7. Get organized! Set a time to declutter and stage your home.

Organize and declutter to give your home newly found space and breathing room. If this feels like an overwhelming project, consider hiring a professional organizer or invite a few friends to help sort and giveaway belongings that are ready to move on. There are a lot of fun ways to get organized along with DIY projects that will keep your home looking bright and welcoming.

Staging is almost always worth the effort when it’s time to bring your home to market. Consider hiring a professional stager or invite a few friends to help you tackle the job. The goal is to create a welcoming space that feels like home but also feels like anyone’s home. Potential buyers will want to picture themselves in your space, which means family pictures and personal style might need to be on pause.

Summary

When you’re getting ready to update your home, take the opportunity to increase the value of your home at the same time. Curb appeal, fresh paint, and decluttering your home can generate buyer interest and offers. Likewise, kitchen and bathroom remodels, adding square footage, and making your home energy-efficient can increase the value of your home and get you a higher appraisal.

If you’re looking to sell your home, talk with your realtor to decide the best place to invest your dollars. And if you’re looking to stay, connect with a mortgage advisor to talk about mortgage and refinance options. A local mortgage expert can help determine the best path to access your equity and fund your renovations.

Next Steps

Consider how you want to fund your home renovations and upgrades. You can access your home equity by refinancing with cash-out, applying for a home equity loan, or even a home equity line of credit. We can help you decide which path will save you the most money and increase the value of your home. Connect with a local mortgage advisor to get started. We’d love to help.

7 Ways to Increase the Value of Your Home

September 14, 2021
7 Ways to Increase the Value of Your Home

Deciding to increase the value of your home is always a good move, whether you’re getting ready to sell your house or renovate for the long term. For a lot of homeowners, upgrades and renovations are par for the course.

Let’s face it, over time, our homes become outdated, weathered, and need a fair amount of maintenance. But which upgrades are worth the effort when you want to increase the value of your home?

This past year, homeowners are spending more and more time at home, working remotely, taking on DIY projects, spending time with friends and family. At the same time, many are deciding to relocate and list their home for sale.

Whether you’re planning to relocate or stay put, here are the top 7 ways to increase the value of your home.

RELATED: How to finance a home renovation project with the FHA 203k loan

TOP 7 WAYS TO INCREASE THE VALUE OF YOUR HOME

1. Add square footage to your home.

Increasing the usable square footage of your home will directly improve your home’s value. Home appraisals evaluate the livable square footage of a home in addition to other comparables in the neighborhood (such as the number of bedrooms and acreage). Therefore, adding a bedroom or an office will automatically increase the value of your home by the added square footage.

Another thing to consider is adding an in-law unit or ADU to the property. In a neighborhood with limited space, adding livable space will increase the value of your home and boost the appraised value (which we blogged about here).

RELATED: Everything you need to know about home appraisals

2. Improve your home’s curb appeal.

Curb appeal doesn’t always translate to a higher home value in a formal appraisal. However, curb appeal has a huge effect on buyers when they visit a home for the first time. So when you compare a handful of homes with similar square footage in the same neighborhood, curb appeal pulls more buyers and generates higher interest. In short, strong curb appeal leads to better offers when you’re getting ready to sell your home.

Landscaping is the path to your front door. Make sure to tidy up the yard, plant some seasonal flowers, keep the grass maintained and freshen up any ground cover. Larger expenses might be fixing walkways or driveways or adding more substantial landscaping. The goal is to get a buyer to stop and shop!

3. Add a fresh coat of paint to your home’s interior and exterior.

Right along with curb appeal, giving your home a fresh coat of exterior paint will improve the perceived value and tell prospective buyers that your home is well-cared for and maintained. Move toward neutral colors that are current for the times and don’t forget your front door.

Interior paint is one of the lowest cost updates you can do to bring a big return. If you’re selling your home, you might need to lean neutral and put a pause on bold choices. Bold colors and personality are beautiful if you’re planning to stay! But for prospective buyers, the interior colors and paint should be welcoming and neutral—a home they can see updating with their own style.

Renovating a fixer-upper? The Fannie Mae Homestyle loan might be a good fit (which we blogged about here).

4. Remodel your kitchen with a modern take.

A kitchen remodel can be costly no matter how you slice it. Often, updating cabinets with a fresh coat of paint and new hardware can have a big impact. Next, update lighting fixtures and replace countertops if they’re worn or outdated.

A bigger remodel can be worth it for many homeowners, especially if you want to stay in your home for a long time. Consider updating your appliances for both aesthetics and energy efficiency. Flooring, countertops, and adding square footage are next on the list. There is a large range of costs vs. value when it comes to kitchen remodels, so work with your realtor if you’re getting ready to sell your home.

Minor kitchen remodels are expected to bring an 80% return, while major remodels have an estimated 48% return on the investment. The value will increase over time as equity builds, so consider this if you’re looking to sell quickly.

RELATED: Compare the benefits of a Home Equity Loan vs. a HELOC for a home renovation

5. Give your bathroom a fresh feel.

The bathroom is one of the most important spaces to consider if you want to increase the value of your home. The good news is that small changes can make a big difference. Consider a minor remodel, including fresh paint, updated hardware and lighting, or even DIY bath and shower updates. If you want to increase the value of your home, think about expanding your bathroom or adding updated features like a walk in shower or soaking tub.

For larger projects such as heated flooring and custom fixtures, most homeowners see a 52% return. As your equity grows, the impact will increase as well. Finally, an updated bathroom can increase interest and generate offers much faster. Updating the bathroom should be at the top of your list.

6. Make your home more energy efficient.

There are a lot of options to increase the value of your home and make it more energy-efficient. Consider installing a smart thermostat, improving insulation, and replacing old windows. Take notice of attic insulation and roofing to decide if updates are needed, as well as updating to energy-efficient appliances in your home. Upgrades will improve the comfort and efficiency of your home and also save on utility bills.

Consider adding energy-efficient technologies and safety features. “Smart” technologies are becoming more popular among buyers who are energy-conscious and value home security. Smart tech doesn’t always increase the value of your home for a mortgage refinance appraisal, but new buyers are typically willing to pay more for a modernized home.

7. Get organized! Set a time to declutter and stage your home.

Organize and declutter to give your home newly found space and breathing room. If this feels like an overwhelming project, consider hiring a professional organizer or invite a few friends to help sort and giveaway belongings that are ready to move on. There are a lot of fun ways to get organized along with DIY projects that will keep your home looking bright and welcoming.

Staging is almost always worth the effort when it’s time to bring your home to market. Consider hiring a professional stager or invite a few friends to help you tackle the job. The goal is to create a welcoming space that feels like home but also feels like anyone’s home. Potential buyers will want to picture themselves in your space, which means family pictures and personal style might need to be on pause.

Summary

When you’re getting ready to update your home, take the opportunity to increase the value of your home at the same time. Curb appeal, fresh paint, and decluttering your home can generate buyer interest and offers. Likewise, kitchen and bathroom remodels, adding square footage, and making your home energy-efficient can increase the value of your home and get you a higher appraisal.

If you’re looking to sell your home, talk with your realtor to decide the best place to invest your dollars. And if you’re looking to stay, connect with a mortgage advisor to talk about mortgage and refinance options. A local mortgage expert can help determine the best path to access your equity and fund your renovations.

Next Steps

Consider how you want to fund your home renovations and upgrades. You can access your home equity by refinancing with cash-out, applying for a home equity loan, or even a home equity line of credit. We can help you decide which path will save you the most money and increase the value of your home. Connect with a local mortgage advisor to get started. We’d love to help.

FHA 203(k) Home Loan is Perfect for Fixer-Uppers

June 29, 2022
mortgage blog, fha 203(k) home loan, preferred rate

As mortgage rates increase and inflation continues to rise, buying a fixer-upper can be a strong option for new homebuyers. Buying a fixer-upper with the FHA 203(k) home loan can be a fast way to get into a great location below market value. What’s more, you can build home equity fast in today’s housing market. That said, buying a home that needs a lot of repairs and remodeling isn’t for everyone. A fixer-upper can quickly become a money pit with endless surprises and a non-stop list of expensive repairs for homebuyers who rush in too quickly. Not to mention extra stress and tackling what it looks like to bring an old home up to code with current city standards.

So here’s the good news: if you’re ready to dive into a home renovation project or buy a fixer-upper, then the FHA 203(k) home loan can help you save money, plan ahead, and build equity fast. Without losing money along the way.

RELATED: Top 7 Ways to Increase the Value of Your Home in 2022

FHA 203(k) Home Loan Explained

The FHA 203(k) home loan is a government-backed loan by the FHA (Federal Housing Administration) created specifically for new homeowners who are ready and eager to take on a fixer-upper or remodel a home that needs substantial work. It has a few different names, but they are all the same home loan and work the same: FHA 203(k) Home Loan, Mortgage Rehab Loan, Section 203(k) Home Loan.

In short, the FHA 203(k) mortgage finances the home’s purchase price and the cost of repairs into a single home loan. One mortgage payment covers everything.

For many who buy a fixer-upper, there turns out to be a lot of extra work once the project gets underway. The FHA 203(k) eliminates that stress. However, there is a fair amount of preparation and planning that goes into an FHA 203(k) home loan. This article lays out the process so you know what to expect.

Related: How to Finance a Renovation with the Fannie Mae Homestyle Loan

 

When the FHA 203(k) Home Loan is a Smart Move

An FHA 203(k) home loan takes the initial purchase price of your new home and combines it with the total estimated costs of repairs and renovation. The result is one home loan that covers your new home and all pending repairs and puts everything into one mortgage payment.

This means you can buy a fixer-upper and you’ll have one mortgage—instead of multiple loans or lines of credit to finance the renovation. With all the costs rolled into one home loan, homeowners are less likely to get stuck in a money pit or a surprise property with endless unexpected repairs. 

 

RELATED: Refinance your mortgage and pay off your debt in 2022

How it Works

The FHA 203k loan combines the purchase price of your home with the total cost of repairs into one mortgage, including labor and materials.

With the FHA 203(k) home loan, the entire cost of the remodel must be estimated and accepted before the home loan is approved. To qualify for the FHA 203(k) home loan, all estimated repairs, including labor and materials, have to be approved upfront which can protect the homeowner from unexpected costs down the road.

Once your loan is approved, you can rest easy and know that you’ve got the financing needed to finish the work on your new home.

The FHA 203(k) loan has a built-in safety net that can help buyers build equity fast without over-extending their finances, especially if this is your first fixer-upper.

How to Apply: FHA 203(k) Home Loan Mortgage Options

The Section 203(k) home loan is typically offered as a 15-year fixed or 30-year fixed-rate loan, but you can also apply for an adjustable-rate mortgage (ARM). The rates might run a little higher than conventional home loans, but once the repair work is finished, refinance options may be available. 

If you’re looking to stay in the home long-term, a fixed-rate mortgage will give you greater financial security and a mortgage payment that won’t change no matter how the market is moving.

On the other hand, if you’re planning to own the home for less than 5 years, then an ARM might give you a lower rate and the flexibility you want.

 

RELATED: How to find the best mortgage lender in your area

 

Can I refinance a home renovation with the FHA 203(k) loan?

The FHA 203(k) mortgage has refinance options available for current homeowners who want to do a big remodel. It’s an especially good option if you don’t want to open a line of credit or take out a second loan against your home equity.

Are there any restrictions with an FHA fixer-upper loan?

A few rules and regulations to get approved for a 203(k) mortgage:

  • The property must be your primary residence
  • Renovations can cost no more than $5k
  • You must work with a HUD consultant
  • A licensed contractor must complete all repairs
  • All renovations must be finished within six months
  • FHA 203k loan requires mortgage insurance
  • An FHA appraiser approves final estimates

The 203k loan isn’t available for investment properties (or secondary properties) or homes priced above current conforming limits ($822,275 in high-cost areas, $510,400 in lower-cost areas). 

What kinds of repairs are covered with the FHA 203k?

Homebuyers can use a standard FHA 203(k) mortgage to do almost any type of renovation except for luxury amenities (e.g., a swimming pool or backyard kitchen). Also, all updates and repairs must be considered “permanent” for the home. A few popular renovations that are covered:

  • Upgrades to remove health and safety hazards
  • Improve accessibility for a disabled person
  • Update plumbing and sewer systems
  • Structural changes such as adding bedrooms
  • Remodel bathrooms and kitchens
  • Install or replace flooring, windows, roofing
  • Major landscaping projects

It’s a good idea to meet with contractors early to make sure your project can begin as soon as the loan closes. Make sure to find a contractor with experience working on projects financed with an FHA 203k loan. 

How much do you have to put down on a 203k loan?

  • Down payment is typically 3.5% of the purchase price plus the cost of repairs
  • The maximum loan amount is 110% of the formal appraisal
  • Mortgage insurance is required
  • A minimum credit score of 580 (most lenders may require 620+)

For homebuyers with a credit score between 500-580, the typical down payment required is 10%. Gifted funds are allowed from friends and family, and down payment assistance programs might also be available. Connect with a local mortgage advisor to decide which mortgage program will save you the most money.

Compare: Should I use a Home Equity Loan or HELOC for a home remodel?

 

Summary

Buying a fixer-upper can be a smart financial decision for homeowners looking to enter today’s housing market. Especially in locations with higher prices. In general, the FHA 203k loan is a good fit for any primary residence that needs a substantial amount of work. Loan requirements, such as how much you can borrow and how you can spend the money, are set by the FHA during the loan approval process.

The main benefit is that all the construction work and repairs are estimated at the onset and rolled into one mortgage. So you’ll be protected from over-extending yourself or falling into a money pit after you buy the property.

A few quick reminders: Properties that need less than $5k in repairs won’t qualify for a 203k loan. Also, it’s not a good fit for luxury renovations since the FHA limits how much a homeowner can borrow.

Take Action

If you’re considering buying a fixer-upper, we can help you decide which mortgage is best for your renovation. There is a lot of paperwork and requirements to get approved for an FHA 203k loan, but it’s worth it.  Plan your renovation, save money, and no surprises. We can help you be fully prepared before you make an offer. Connect with a local mortgage advisor to get started. We’d love to help.

Top Home Renovation Loans for 2022

June 8, 2022
blog renovation interior

Financing a home renovation in 2022 can help you update your home, build equity, and finally get that backyard kitchen you’ve been dreaming about.

If you’re like a lot of homeowners, 2022 is looking a lot like 2021 at the moment. This means remote work is still the norm, kids are home for summer, and your home is the main hub for everything you do in life.

Financing your home renovation doesn’t need to break the bank either. You can do a cash-out refinance, apply for a new renovation loan, access your equity through a home equity line of credit and more.

Whether you want to build out your current home or buy a fixer-upper, these mortgage options will help you finance the whole renovation top to bottom.

 

RELATED: Top 7 Ways to Increase the Value of Your Home in 2022

How to Use Your Home Equity for a Home Renovation

Home equity is the financial difference between your mortgage balance and the appraised value of your home. For example, if your current mortgage balance is $475k and the current market value of your home is $720k, then you’ve got $245k in home equity.

The most popular ways to access your home equity for a home renovation are:

  • Cash-out Refinance
  • Home Equity Loan
  • Home Equity Line of Credit

When you want to access the equity in your home, most lenders will only approve up to 80% of your home’s value. This allows for market fluctuations in property value and lowers risk in the eyes of the lender. In the example above, the 80% Loan-to-Value ratio means you could borrow up to $576k, giving you potential access to $100k.

 

Cash-Out Refinancing for a Home Renovation

 

Refinancing your mortgage with a cash-out refinance gives you the most flexibility. You can choose whether to refinance with a fixed-rate, adjustable-rate, 15-year, 30-year, or custom options. 

Once your new mortgage closes, you’ll receive your cash (equity) in a lump sum, and you can spend it however you want. There are no limitations, no requirements, and no accountability. You can also take your time using the funds or even use the funds on things outside your home renovation.

 

RELATED: Refinance your mortgage and pay off your debt in 2022

Home Equity Loan

Home equity loans are almost always fixed-rate loans with set terms, fixed monthly payments, and a fixed payment schedule. You get the full amount in one lump sum once you’re approved. Then you pay off the loan in fixed payments over the life of the loan.

Highlights:

  • A low-interest rate that is locked in for the life of the loan
  • Fixed monthly payments which make it easy to budget and plan
  • Lump-sum disbursement so you can start a big project right away
  • No limitation on the use of funds
  • The interest on your home equity loan may be tax-deductible

Worth noting: higher credit scores mean lower rates. Check for prepayment penalties in case you decide to pay it off sooner than scheduled or if you might want to refinance later.

Home Equity Line of Credit (HELOC)

A home equity line of credit operates like a revolving credit account. Instead of having a set payment schedule and a fixed rate, HELOCs give you access to a line of credit with a maximum limit.

You can use the funds at any time, and you won’t accrue any interest until you draw from the account. HELOC’s have a set draw period (typically 10 years) and a variable APR based on the prime rate and market trends.

Highlights:

  • Access as much or as little money as you want to meet the needs of your projects
  • Interest doesn’t accrue until you access the funds
  • Repayment terms are flexible (pay it off or make minimum monthly payments)
  • Use the funds for whatever you want
  • The interest on your HELOC may be tax-deductible

 

RELATED: How to find the best mortgage lender in your area

 

Fannie Mae HomeStyle Renovation Home Loan

The Fannie Mae HomeStyle Renovation Home Loan is a great opportunity for current homeowners who want to do some big updates, as well as homebuyers looking for a fixer-upper. 

The HomeStyle renovation loan has a lot more flexibility than the FHA 203(k). For example, you could put in permanent landscaping features such as a pool or an outdoor kitchen, build an accessory dwelling unit (ADU), or upgrade your windows. Consider full kitchen and bathroom upgrades for the interior or build an extensive remodel.

The HomeStyle renovation loan estimates the cost of repairs and renovation ahead of time, so you have one mortgage that includes the entire amount (renovation costs + purchase price). Once your approved mortgage closes, you’ll be able to start improvements right away and enjoy the financial security that comes with one mortgage payment.

The Fannie Mae Home Renovation loan is extremely flexible with a full suite of advantages which we blogged about here.

The FHA 203(k) Home Loan

With the FHA 203k loan, you can buy a home that needs a fair amount of work and make the repairs affordable with one mortgage and a single monthly payment. The 203k combines the price of the home with all renovation costs and finances everything with one mortgage at a fixed rate.

Since the home loan covers the purchase price plus all the renovations, you’re able to spread the cost of repairs over the life of the loan with one affordable mortgage payment. 

There are a few restrictions with the FHA 203(k) loan along with great benefits, which we blogged about here. 

VA Renovation Home Loan

The VA home renovation loan is a unique program offered to active members of the military, veterans, and their spouses. The VA renovation loan is government-backed (guaranteed by the government). For this reason, mortgage lenders can offer low mortgage rates and great terms. 

Like other home renovation loans, the VA renovation home loan puts the costs of repairs, upgrades, labor costs, and materials into one loan. This means one mortgage payment and financial stability while the repairs are completed. 

One caveat: borrowers need to use a VA-approved contractor for the work in order for the loan to get approved.

 

Take Action

If you’re ready to start your home renovation in 2022, connect with a mortgage advisor to discuss your goals. There are several custom loan options in addition to home equity loans and cash-out refinancing. Whether you are a homeowner with equity or looking to buy a fixer-upper, starting a home renovation in 2022 is a smart move. Connect with a local mortgage advisor to discuss your loan options and get busy. We’d love to help.

Save Money on Your Home Renovation in 2022

January 18, 2022
mortgage blog, home renovation, 2022, preferred rate

Financing a home renovation in 2022 can give you the extra cash you need to update your home, build equity, and finally get that backyard kitchen you’ve been dreaming about.

If you’re like a lot of homeowners, 2022 is looking a lot like 2021 at the moment. This means remote work, kids home from school and using your home as the main hub for everything you do in life.

Financing your home renovation doesn’t have to break the bank either. You can do a cash-out refinance, apply for a new renovation loan, access your equity through a home equity line of credit and more.

Whether you want to build out your current home or buy a fixer-upper, these mortgage options will help you finance the whole renovation top to bottom.

RELATED: Top 7 Ways to Increase the Value of Your Home in 2022

How to Use Your Home Equity for a Home Renovation

Home equity is the financial difference between your mortgage balance and the appraised value of your home. For example, if your current mortgage balance is $475k and the current market value of your home is $720k, then you’ve got $245k in home equity.

The most popular ways to access your home equity for a home renovation are:

  • Cash-out Refinance
  • Home Equity Loan
  • Home Equity Line of Credit

When you want to access the equity in your home, most lenders will only approve up to 80% of your home’s value. This allows for market fluctuations in property value and lowers risk in the eyes of the lender. In the example above, the 80% Loan-to-Value ratio means you could borrow up to $576k, giving you potential access to $100k.

Cash-Out Refinancing for a Home Renovation

Refinancing your mortgage with a cash-out refinance gives you the most flexibility. You can choose whether to refinance with a fixed-rate, adjustable-rate, 15-year, 30-year, or custom options. 

Once your new mortgage closes, you’ll receive your cash (equity) in a lump sum, and you can spend it however you want. There are no limitations, no requirements, and no accountability. You can also take your time using the funds or even use the funds on things outside your home renovation.

RELATED: Refinance your mortgage and pay off your debt in 2022

Home Equity Loan

Home equity loans are almost always fixed-rate loans with set terms, fixed monthly payments, and a fixed payment schedule. You get the full amount in one lump sum once you’re approved. Then you pay off the loan in fixed payments over the life of the loan.

Highlights:

  • A low-interest rate that is locked in for the life of the loan
  • Fixed monthly payments which make it easy to budget and plan
  • Lump-sum disbursement so you can start a big project right away
  • No limitation on the use of funds
  • The interest on your home equity loan may be tax-deductible

Worth noting: higher credit scores mean lower rates. Check for prepayment penalties in case you decide to pay it off sooner than scheduled or if you might want to refinance later.

Home Equity Line of Credit (HELOC)

Home equity line of credit operates like a revolving credit account. Instead of having a set payment schedule and a fixed rate, HELOCs give you access to a line of credit with a maximum limit.

You can use the funds at any time, and you won’t accrue any interest until you draw from the account. HELOC’s have a set draw period (typically 10 years) and a variable APR based on the prime rate and market trends.

Highlights:

  • Access as much or as little money as you want to meet the needs of your projects
  • Interest doesn’t accrue until you access the funds
  • Repayment terms are flexible (pay it off or make minimum monthly payments)
  • Use the funds for whatever you want
  • The interest on your HELOC may be tax-deductible

RELATED: How to find the best mortgage lender in your area

Fannie Mae HomeStyle Renovation Home Loan

The Fannie Mae HomeStyle Renovation Home Loan is a great opportunity for current homeowners who want to do some big updates, as well as homebuyers looking for a fixer-upper. 

The HomeStyle renovation loan has a lot more flexibility than the FHA 203(k). For example, you could put in permanent landscaping features such as a pool or an outdoor kitchen, build an accessory dwelling unit (ADU), or upgrade your windows. Consider full kitchen and bathroom upgrades for the interior or build an extensive remodel.

The HomeStyle renovation loan estimates the cost of repairs and renovation ahead of time, so you have one mortgage that includes the entire amount (renovation costs + purchase price). Once your approved mortgage closes, you’ll be able to start improvements right away and enjoy the financial security that comes with one mortgage payment.

The Fannie Mae Home Renovation loan is extremely flexible with a full suite of advantages which we blogged about here.

The FHA 203(k) Home Loan

With the FHA 203k loan, you can buy a home that needs a fair amount of work and make the repairs affordable with one mortgage and a single monthly payment . The 203k combines the price of the home with all renovation costs and finances everything with one mortgage at a fixed rate.

Since the home loan covers the purchase price plus all the renovations, you’re able to spread the cost of repairs over the life of the loan with one affordable mortgage payment. 

There are a few restrictions with the FHA 203(k) loan along with great benefits, which we blogged about here. 

VA Renovation Home Loan

The VA home renovation loan is a unique program offered to active members of the military, veterans, and their spouses. The VA renovation loan is government-backed (guaranteed by the government). For this reason, mortgage lenders can offer low mortgage rates and great terms. 

Like other home renovation loans, the VA renovation home loan puts the costs of repairs, upgrades, labor costs, and materials into one loan. This means one mortgage payment and financial stability while the repairs are completed. 

One caveat: borrowers need to use a VA-approved contractor for the work in order for the loan to get approved.

Take Action

If you’re ready to start your home renovation in 2022, connect with a mortgage advisor to discuss your goals. There are several custom loan options in addition to home equity loans and cash-out refinancing. Whether you are a homeowner with equity or looking to buy a fixer-upper, starting a home renovation in 2022 is a smart move. Connect with a local mortgage advisor to discuss your loan options and get busy. We’d love to help.

Refinance a Mortgage to Pay Off Debt for 2022

December 7, 2021
mortgage blog, refinance, cash out, preferred rate


If you want to pay off debt and start 2022 with a clean slate, refinancing your mortgage with a cash-out refinance can give you financial freedom for the new year.

Homeowners with equity have a lot of choices when it comes to refinancing a mortgage. Applying for a cash-out mortgage is one option, but there a several loan options worth considering if you want to pay off debt.

These quick steps can help you get started.

How to Fast Track Your Refinance and Pay Off Debt

If you’re ready to refinance your mortgage to pay off debt, take action now and access today’s mortgage rates while they are still low.

Low interests rates are only one part of a mortgage refinance. To be honest, several factors directly impact your refinance rate, including your credit score, loan-to-value ratio, and the type of loan you choose.

Step 1: Decide how much debt you want to pay off

Use a free mortgage calculator to find out how much you can save when you refinance your mortgage. Decide which factors are most important to you, then connect with a mortgage advisor to discuss your mortgage goals. For example, maybe you want to take out as much cash as possible, or maybe you want to refinance for a lower mortgage payment. It might be time to refinance from an adjustable-rate mortgage to a fixed-rate mortgage.

Or you could apply for a rate and term refinance to get a lower mortgage payment. A lower mortgage payment can free up monthly income toward debt repayment. Alternatively, applying for a home equity loan or a HELOC is another option.

Use this mortgage refinance calculator to see how much you can save

Step 2: Connect with a local mortgage advisor

Talk to a mortgage advisor right away if you want to refinance your mortgage with cash-out to pay off debt. An experienced mortgage advisor can start the process quickly and help you lock in the lowest rate possible. What’s more, they’ll uncover hidden opportunities and customize a mortgage refinance to meet your immediate and long-term financial goals.

No matter your credit score or employment status, there are refinancing options available for most homeowners.

Ask about a HELOC or Home Equity Loan, both of which allow you to access the equity in your home and use the funds however you’d like. A standard cash-out refinance is a more direct way to access cash, restructure your home loan with a fixed-rate and enjoy a lower mortgage payment.

Find a qualified mortgage expert in your local area

Step 3: Gather required documentation for a cash-out refinance

Start gathering paperwork you’ll need to verify income and assets, employment information, bank statements, and tax returns. Ask your mortgage advisor for a quick list to help keep things on track. An experienced mortgage advisor will provide a checklist to follow and will make sure the process runs smoothly.

If you’re self-employed, your mortgage advisor can talk with you about additional information that might be required.

Step 4: Download your free credit report

If you want to pay off debt, chances are your credit might not be the best right now. Don’t let late payments or high credit balances keep you stuck.

You can download a free copy of your credit report once every 12 months. It’s a good idea to look for any errors in advance and know what you’re facing. Your credit score has a direct impact on the terms of your loan and your mortgage rate. By reviewing a free copy of your credit report early, you can fix errors ahead of time and partner with your mortgage advisor to get the right mortgage.

Click here to download your free credit report

Questions about refinancing? We hear you.

What are my options for refinancing a mortgage to pay off debt?

If your current mortgage is more than 6 months old, here are the most common options worth considering if you want to pay off debt:

Applying for a cash-out mortgage refinance is the fastest way to access cash from the equity in your home.

That said, if you apply for a rate and term refinance, you could substantially lower your mortgage payment, and put those savings directly toward paying off debt. Also, if you decide to consolidate a 1st and 2nd mortgage, you can apply your monthly savings directly to pay off debt.

Applying for a Home Equity Loan or a HELOC is another option that gives you direct access to cash at a low interest rate. With a home equity loan or a HELOC, there are no restrictions on how you use the funds, so you can pay off debt, start a home renovation, or start a new investment.

Can I refinance my mortgage without getting a home appraisal?

With a cash-out refinance to pay off debt, a home appraisal is almost always necessary. Depending on your refinancing terms, the mortgage lender will most likely initiate an appraisal to verify your home’s current market value.

The mortgage lender will want to evaluate risk and verify that your home value meets the 80% loan-to-value ratio. In some cases, you might have the option to bypass a home appraisal. Talk to a mortgage advisor to see if you qualify for a no-appraisal refinance. 

RELATED: Talk with a local mortgage expert to find out if you qualify for a no-appraisal refinance

Are there closing costs to refinance a mortgage to pay off debt?

Yes. Even when you apply for a mortgage refinance to pay off debt, there will be closing costs. However, there are options to roll your closing costs into your new loan, which we recently blogged about here.

Closing costs on a cash-out refinance to pay off debt typically include:

  • Origination Fee
  • Appraisal Fee
  • Credit Report Fee
  • Mortgage Insurance (if applicable)

When you refinance a mortgage to pay off debt, most homeowners have the option to pay the closing costs upfront, roll them into the loan, or get a lender credit in exchange for a higher rate. Review the numbers to decide whether or not refinancing to pay off debt is actually saving you money. 

RELATED: Learn the Truth About No-Closing Cost Loans

What documentation will I need to refinance my mortgage to pay off debt?

Refinancing a mortgage to pay off debt is similar to starting an application for a home loan, with a few exceptions. Mortgage lenders require varying documentation depending on the type of home loan you decide on.

Common documentation to pull together:

  • Identification such as a passport or driver’s license
  • Employment verification
  • Proof of income (e.g., pay stubs, W-2 statements, bonuses, alimony)
  • Tax returns for the past two years 
  • Recent bank statements
  • Investment account statements

If you’re self-employed, ask your mortgage advisor about additional information that might be required.

RELATED: How to refinance a mortgage when you’re self-employed

Next Steps

When you’re ready to refinance your mortgage to pay off debt, an experienced mortgage advisor can help you access cash, lock in the lowest mortgage rate, and secure your best home loan. Connect with a mortgage advisor to discuss your options and make a plan that can help you save money on your mortgage. We’d love to help.

Home Equity Loan vs. HELOC for Home Renovation

April 17, 2021
blog bright kitchen

Building equity in your home is one of the great advantages of being a homeowner. Accessing your home equity when you need it is even better. So when it comes to home improvement and house repairs, what’s the best way to tap into your home equity? For homeowners who have seen a big jump in the value of their home in 2020, you have a lot of options. This short article breaks down the benefits and drawbacks of using a Home Equity Loan vs. HELOC (Home Equity Line of Credit) for home repairs and renovations.

Home Equity Basics

Home equity is the financial difference between what you owe on your home (your mortgage balance) and the value of your home (based on a formal appraisal). For example, if your current mortgage balance is $478k and the current market value of your home is $680k, then you’ve got a little over $200,000 in home equity.

When you want to access the equity in your home, most lenders will only approve up to 80% of your home’s value. This allows for market fluctuations in property value and lowers the risk of foreclosure in the eyes of the lender. In the example above, the 80% Loan-to-Value maximum would be $544k, giving you potential access to $65k.

How to Use Home Equity Funds: Home Renovations, Repairs, and Remodels

To decide if a home equity loan or home equity line of credit might be a good fit, it’s a good idea to figure out how you want to use the funds. A few popular updates are:

  • kitchen remodels
  • bathroom remodels
  • new roofing, siding, windows
  • major landscaping & backyard improvements
  • home office additions

Since both a home equity loan and a home equity line of credit are big financial commitments, take time to consider the value of the improvements you want to make. Renovations don’t necessarily have to improve the value of your home but they will work to your benefit if they do. Both loans are designed to help maintain and improve the value of your home. Ideally, you want to increase your property value in the process. If you need to sell your house for an unexpected reason, you won’t be upside down when it comes to your mortgage.

Home Equity Loan Advantages

Home equity loans are almost always fixed-rate loans with set terms, fixed monthly payments, and a fixed payment schedule. When you’re approved for a home equity loan, you get the full amount in one lump sum. Then you pay off the loan in fixed payments over the life of the loan.

Highlights and Advantages:
  • A low-interest rate that is locked in for the life of the loan
  • Fixed monthly payments which make it easy to budget and plan
  • Lump-sum disbursement so you can start a big project right away
  • No limitation on the use of funds
  • The interest on your home equity loan may be tax-deductible

Worth noting: higher credit scores mean lower rates. Check for prepayment penalties in case you decide to pay it off sooner than scheduled, or if you might want to refinance later.

Home Equity Line of Credit (HELOC) Advantages

Home equity line of credit operates like a revolving credit account. Instead of having a set payment schedule and a fixed rate, HELOCs give you access to a line of credit with a maximum limit. You can use the funds at any time and you won’t accrue any interest until you draw from the account. HELOC’s have a set draw period (typically 10 years) and a variable APR which is based on the prime rate and market trends.

Main Benefits:
  • Access as much or as little money as you want to meet the needs of your projects
  • Interest accrues only when you access the funds
  • Repayment terms are flexible, pay it off or make minimum monthly payments
  • Use the funds for whatever you want
  • The interest on your HELOC may be tax-deductible

Additional Resources for Home Renovations

Home equity loans and HELOC’s are both set up as a second loan using your home as collateral. If you don’t want a second loan, or you want to refinance your mortgage and take advantage of other financing options, you’re not alone. A few other options to consider:

  1. Fannie Mae HomeStyle Renovation Loan
    A conventional home loan that wraps everything into one mortgage: purchase price (or mortgage balance), repairs, updates, labor, and materials.
  2. FHA 203(k) Home Loan
    A government-backed home loan to purchase a fixer-upper or refinance a home loan to cover major repairs or renovations. One mortgage will cover the purchase price (or refinance) plus the costs of all upgrades and repairs.
  3. VA Renovation Home Loan
    The VA renovation home loan is a government-backed mortgage with exclusive benefits for active-duty service members, veterans, and eligible spouses. It rolls the cost of the mortgage plus the cost of repairs and upgrades all into one home loan

Each of these renovation home loans has various requirements and limitations for loan approval. Talking with a mortgage expert can help decide which options will save you the most money and help you reach your financial goals.

TAKING ACTION

If you’re thinking about tapping into the equity in your home, talk with an experienced mortgage advisor. A great loan advisor can save you money and keep the process moving easy and stress-free. Just knowing what to expect can help you decide the best action to reach your goals. When it comes to saving money on your mortgage, we can help.