Your Guide to Home Remodeling Financing Options
As you plan renovations for your home, one of the important topics that will come up for discussion is what type of home remodeling financing you will choose for your new windows or replacement doors.
Some projects may require a home equity loan, and others may carry a price tag that requires just a few months of saving. If your project is something that must occur immediately (perhaps your home was impacted by storm damage), you may need to consider financing. If your project is something you’d like to do in the near future, you might consider saving for the project or financing just part of the cost.
Factors to Consider When Choosing Home Remodeling Financing
It’s easy to dream big when you start thinking about remodeling your home, but it’s important that your dreams don’t break the bank. With smart planning, your home remodeling project will feature an affordable cost and the best result.
Questions to ask yourself during your planning include:
- How much money will the project cost overall?
- Which financing options will save you the most money?
- Which lenders will offer the best chance of approval?
Your contractor is an invaluable source of information for the cost of your project. National or regional averages for home remodeling projects are a good place to start, but actual numbers can vary wildly when it comes to materials used and the scope of the project.
With a contractor’s advice and a good estimate based on an in-home visit, you don’t have to play a guessing game as to the overall cost of the project.
Choosing the Right Type of Financing
The opportunity to obtain financing through a variety of means has meant greater opportunity for homeowners seeking a loan outside of traditional bank environments. However, the experts at This Old House explain why loan shopping can become difficult:
“But with so many competing lenders, loan options, and terms, it also means loan shopping can be as challenging as house hunting.”
You may need to find a calculator and get familiar with some basic math equations to figure out whether a home equity loan makes sense for your project. A traditional lender will use a ratio known as “loan-to-value,” which is a number that is based on a percentage of your home’s total value. Most lenders hover around 80% for their approval amounts.
So, for easy figuring, imagine you’re living in a home worth $100,000. The lender would arrive at a loan amount of $80,000 minus the amount remaining to be paid on your mortgage. If you still owed $50,000 on your mortgage, your maximum loan amount would be $30,000. That’s an $80,000 limit minus a $50,000 mortgage balance that equals a $30,000 maximum loan.
Other factors that may also influence your total approval amount include your total income and how much you pay for your house, as well as other expenses. Banks like to see that you’re paying no more than approximately 28% of your monthly income on house payments. In total, banks want you to be paying no more than 36% of your gross monthly income on debts (including your house payment).
It can take a fair bit of calculation to arrive at a final figure for your loan approval amount, which is why some homeowners choose to work with a broker to find the most appropriate financing option. A broker will also help you understand how minor changes in interest rates may influence your total loan cost.
Some of Your Financing Options
Since it’s helpful to see a concrete list of options when choosing something as important as home remodeling financing, here are some of the ways you can pay for your new windows or doors.
- Traditional loans from mainstream banks & credit unions
- Home equity loans or home equity lines of credit
- FHA 203(k) mortgages that are FHA-insured
- Energy-efficient mortgages for homes approved by Fannie Mae
- “B” and “C” loans for anyone with less-than-perfect credit
Your personal credit history, the size of your project, and the size of your mortgage (or the total value of your home) will influence which lending option will offer the most affordable way to complete your home remodeling project.
Did You Know? AHT Wisconsin Windows works with lenders to help you secure financing for your home remodeling.
Start Your Home Remodeling Project with AHT Wisconsin Windows
Is it time to update or replace your doors? Would you like to have new windows installed in your home? Contact AHT Wisconsin Windows today for a Free No Obligation Quote or call 1-866-367-6560. Want more information before you choose your contractor? Download our FREE hiring guide for Wisconsin-area residents.