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Thursday, March 20, 2014

How Do I Pay For It?


If you have been reading our newsletters for a while, you know that many of our most popular home improvement projects are costly.  Your entire house in hardwood floors, kitchen and bathroom remodels, and even top-of-the-line new carpet for really large homes:  the price tags can be in the tens of thousands.  Many have planned ahead for these updates and have the cash set aside.  In fact, one of the most commonly used payment methods our clients use is American Express, because they have the cash and want the points.   Other clients take advantage of 18 and 24 month interest free financing during the time periods that we have these options available.  But for some of us, even 24 month financing is not enough to comfortably fit within our budget. 
  
If this describes you, great news!  As the real estate market and economy has improved, so has the availability of long-term financing options with great rates.  We recently discussed some options with Todd Shepard, 

Senior Mortgage Banker with Fidelity Bank, and he made us aware of several programs that may be exactly what you have been looking for.  Todd tell us that there are essentially three ways to finance a remodeling project:

-a cash-out refinance
-an equity line
-a renovation loan
  
The first two options can work well if you have a lot of equity in your home today.  Renovation loans work well in all situations because the amount you can borrow is based on how much your home will be worth after you make the improvements.
  
Let's take a look at the cash-out refinance and equity line options together, because they work very similarly.  When you apply for one of these loans, your bank will order an appraisal to determine your home's current value.  The bank will then lend you as much as 85 percent of that value for the cash-out refinance and typically 90 percent for the equity line.  From that amount, you subtract your current mortgage balance to determine the amount you net for your project.
  
Again, these options work well if you have a lot of equity in your home.  But what if your current loan balance is at or above 80 percent of your current value?  What if you need more than $10,000 to $20,000 for your project?  This is where the renovation loan saunters in to save the day.
  
The renovation loan was designed with you and your project in mind.  It has two huge advantages that make it an extremely useful financing tool.  The first is that the bank bases the amount they will lend you on the after-improved value of the home, so you get credit for the upgrades and additions.  The second advantage is that if you meet credit requirements, the bank will lend you as much as 95 percent of the after-improved value if needed.  By the way, this product can also be used to purchase a fixer upper and finance the improvements into the same loan.
  
Let's look at an example to see how these advantages can work for you.  Assume that you have a project in mind that will increase your home's value from $300,000 to $350,000, and your current mortgage balance is $250,000.  Because renovation loans use the after-improved value, that means you could borrow as much as $332,000($350,000 multiplied by 95 percent) which would net you roughly $82,500 for your project after you pay off your current mortgage.  Using these same figures you would only net $5,000 on a cash-out refinance and $20,000 using an equity line.  You've priced out maple hardwood floors and top of the line refrigerators---would that extra $62,500 to $77,500 come in handy for your project?
  
This renovation loan program is also ideal for a home buyer looking at houses that need a lot of cosmetic updating but not necessarily major repairs. 
  
The great news is that there are now options available, because for the past several years it was extremely hard to get a mortgage, much less a home improvement loan!  Contact a Mortgage Banker/Broker to find out more about these programs.

What's New At Enhance
It's that time of year that almost every day new products are arriving at the Enhance Design Center.  We just received a shipment of new Shaw area rugs.  Some are suitable to go outside: just what you need to freshen up your deck or porch. 

We have new carpet styles from
Mohawk, Perfection by Bliss, and Tuftex. 
 

If tile is your style, be sure to see the newest selections from 
Interceramic and Happy Floors. 

 
New countertops are a one-day dramatic update to your kitchen, 
and we have new stones in granite and quartz to show you.  

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