Have you been dreaming about a new kitchen or an updated bathroom but wondering how you would ever be able to fund such a major project? Banks and credit unions are aware that the average homeowner doesn’t have a large lump sum of cash just sitting around. This is where refinancing comes into play. Consider refinancing your home to free up some money to invest in making those home improvement vision boards a reality.
Many homeowners hesitate to refinance simply because the process can feel daunting or unknown. The good news is that the process isn’t as complicated as it seems, and there are many benefits to refinancing besides just getting cash out for a home improvement project. Once you sit down and take some time to learn about the process, you will learn that refinancing simply allows you to continue what you have already been doing as a homeowner: investing in your home.
Steps to Start the Process
It is understandable that before you officially commit to refinancing you want to know as much as possible about the process. When you refinance a mortgage loan for remodeling a home, you are most likely starting the process for what is called a cash-out refinance. This will allow you to choose a lump sum to fund the remodeling project. A tip the pros often mention is to take out a little more than you originally intended as a cushion for anything that may arise once the remodeling begins.
One of the first things to consider when starting the process is how much equity you have in your house since you originally purchased the loan. Lenders will often be hesitant to start the refinancing process on a recent loan which is something to keep in mind as well. The more equity you have the better off your options will be for securing a loan with a fair interest rate. Plus, the more funds you will have available to purchase high-end finishes for your remodel.
After you find out the general amount of equity you have in your home, take some time to research local and national banks that offer to refinance. Many banks offer incentives for refinancing and different banks will have different deals in place. In other words, do some shopping around to find the best options to fit your financial needs and goals for your remodeling job.
Tips to Improve the Process
Besides equity, one of the next most important numbers when it comes to collecting information for the process of refinancing is your credit score. If you have some time before you need to officially start the process, it is worth doing some research to find simple and efficient ways to improve your credit score. The higher your credit score, the better off your interest rate will be which will save you money in the long term.
It may sound counterintuitive, but opening up a credit card with a small credit limit and then making monthly payments is a simple and easy way to improve your credit score. This is only true if you do not have a variety of previous credit cards. Regardless, paying bills on time is what matters most. Banks like to see that you can pay your bills consistently.
Another factor to consider is your debt to income ratio. Paying off debt is always a good idea, but especially when it comes to starting a large loan for refinancing. If you have a variety of loans for cars, student loans, credit cards, etc. it is worth taking some time to try and lower your debt before officially taking out a refinance loan.
Benefits of Refinancing
Not only will refinancing your loan allow you to update your house exactly how you have envisioned it, but depending on your credit history and the current housing market, you may be able to lock in a lower interest rate which will help you save money in the long run.
Another potential option is to bundle loans together when you refinance, such as adding your car loan in with your mortgage loan. Not only does this make the monthly payments easier to manage, but it can also help you save money on interest over time.
And lastly, oftentimes lenders will give a grace period before the new loan begins which often allows for a month or two with no mortgage payment. That grace period may allow you to use some extra cash to help get some of those extra little details you were hoping for in your remodeling budget.
Talk With A Contractor
If you are getting ready for a major home remodel, you have likely already thought of specific ideas and maybe even have a contractor or two in mind you are hoping to work with. Before you officially commit to a new mortgage loan when refinancing, make sure you have talked with a contractor about the specific goals for your remodel. It is worth looking into specific details as well such as the cost of labor and supplies that you are hoping to use in a kitchen or bathroom remodel.
Refinancing a loan can be a long and sometimes costly process upfront, so it is not something you want to do multiple times. It is important to know the budget for your home remodel so that you take out the adequate amount to cover the cost of the project.
Remodeling your home is an exciting time to see some of your home improvement dreams become a reality. It is easy to want to jump in quickly and get started. But it is worth slowing down and taking your time when beginning a refinancing loan. Remember to shop around to find not only the best rates but lenders that are willing to work with you and your specific financial situation. Once the process is started, you will be thankful you took the time to find the financial option that works best for your remodeling needs.