There are several excellent reasons to consider a home renovation. Financing a kitchen or bathroom remodel increases the value of your property and enhances energy efficiency.
Various financing options are available, including those from a private lender. Deciding on the right financing option is as important as picking the room or space you want to remodel.
What are The Advantages of Renovation Financing?
If you’re considering renovation financing, you should know about some of the more significant advantages, such as the following:
- Renovating can increase your home’s value. For example, new appliances can make a big difference if you’re looking to sell. Even a new coat of paint on existing windows matters.
- There’s improved Energy Efficiency when you update older appliances. Using a private loan for renovation financing allows you a shorter term. You can take the money to renovate your bathroom and make small changes like replacing toilets and sinks quickly if you’re looking to sell. Low flush models are Energy Efficient.
- Renovation financing can provide you with a rental income. If you decide to rent, aligning with the market is essential. What similar properties are charging in your area will generate a cash flow. Go overboard, and you can price yourself right out of the market.
- Renovating is much more cost-efficient than moving. Moving takes a lot of time and effort, and if you know what you want to change about your present place, renovating can get the job done. There are a lot of moving parts if you plan on selling, including securing financing, searching for a new property, and even closing the transaction.
- Beyond the financial benefits, renovating can increase the enjoyment of your home if you’re planning on staying put. For example, opening up a room can give you the illusion of more space.
What Should Be Considered When Seeking Renovation Loans?
Here are a few other boxes you need to check:
How You’ll Get the Funds
There’s a difference between a renovation and a construction loan. While you can get the money to remodel a bathroom or kitchen through a line of credit, a construction loan is a little different. If you’re planning on building your dream home, the chances are a contractor will only get the money in what is called draws. That means a lender will release cash as certain stages of the project are finished.
The Requirements
- Planning a budget is the first step. It’s a good idea to create a need and want list. When planning a budget, it’s also a good idea to consider the order in which you wish to complete items in a renovation. It’s never a good idea to upgrade one area, like cabinets, if you’re planning on doing granite countertops, too, and you run out of money.
- Your financing options include getting a store credit card for a smaller project.
However, you’ll want to watch out for high interest rates. There are a variety of government rebates to consider. You can check out the Energy Star incentives and rebates using this drop-down menu.
Regardless of where you finally get the money, you must manage your budget so the project stays on course.
What are the Options for Financing Home Renovations?
Before you start sorting through your financing options, it’s a good idea to understand some of the renovations that offer the highest return on investment.
Articles from HGTV.ca prioritize kitchen renovations and upgrades. If you’re willing to redo that space in your house, you can expect a return on investment of between 75% and 100%.
Financing can be flexible, and there are several options to consider.
- Smaller projects don’t always require a lot of money, so you might want to pay for the materials yourself. You might only need your credit card here. However, make sure not to carry the balance for too long because the rates can top 18%.
- If you’re looking at a renovation, the chances are you already own a house. That makes either a home equity loan or line of credit a good choice. Keep in mind that both of these are secured and use your home as collateral. Either of these might be a good choice if you’re looking at doing a bathroom renovation, which carries a 62% ROI.
Private lenders are an excellent choice for home renovations for several reasons. Their streamlined application process means that you’ll usually get the money quicker than going to a conventional bank. Private lenders can often get you financed in just a few days, whereas a bank or credit union can take several weeks.
How Can Homeowners Access Funds for Renovations?
Homeowners can tap into their equity to finance renovations like a finished basement. The HGTV survey puts this renovation in the top three. It’s also optional to do only part of the basement but get a return.
Private lenders generally use a different set of criteria than traditional banks. They emphasize equity more than credit scores. These alternative lenders look for homeowners with over 25 % equity built up. Companies and individuals also use the Loan-to-Value Ratio (LTV). Essentially, the property’s appraised value is divided by the requested mortgage or loan amount. Private lenders go up to 75% LTV.
There are also government programs where you can apply for funding. The Natural Resources Canada resource is a good starting point.
A Home Equity Line of Credit (HELOC) is still an excellent way to get a loan for a renovation because of the low-interest rates and flexibility. These are another way to borrow cash against your equity and a super way to finance large-scale renovations.
Having a road map for this kind of financing helps. Here are a few steps to follow that work, whether replacing a washroom floor or undertaking a more extensive renovation.
Are You Looking for Renovation Financing?
Mortgage Broker Store focuses on numerous mortgage-related products. One of our priorities is mortgages that don’t meet traditional lending institution requirements. Our team includes private lenders, brokers, and authorized mortgage agents. Let us help you prepare for and get renovation financing that meets your requirements. Email ron@mortgagebrokerstore.com or call 416-499-2122.
