Are you considering a home remodel or home refinance? The very first thing you want to do is confirm your credit rating. Without an excellent credit rating, you most likely will not qualify for the incredibly low interest rates that lenders are bragging about lately. Once that step is taken care of, it is time to consider your options.
Things to consider
Refinancing and remodeling are both things I’ve dealt with in the past. There are several things that must be considered for either choice:
1. Will the refinance or remodel choice make your home exceed its reasonable value?
2. Are you qualified for lower interest rates with a refinance or remodel?
3. How will an additional payment affect your finances?
4. Why do you feel you should refinance or remodel the home?
5. How much time will it take to qualify for either option? Is it worthwhile to wait that long?
Refinancing your home
Lower interest is certainly one of the best reasons to consider refinancing. Your payment may lower slightly, in some cases, but you will be applying more of your payment to the principal. This will increase your equity much more quickly.
Is your job fairly secure? Will you be able to make the additional payment amount, if the payment increases? There is no sense in jumping from the frying pan into the fire. Be honest in your calculations.
What is the age of the homeowners? If you are both in your sixties, a lower payment and longer payment time may not be such a bad idea. Praise be if you make it into your nineties, but many of us will not, and that low payment because of the longer period of the loan may keep the wolf from the door.
After paying off any liens, credit cards, and other debts you wish to cover with the refinance, will there be enough money to do whatever else you wish to do?
Remodeling your home
Create a list of what you want to do, why you want it done, and what it will cost. The important thing is to have that realistic, documented information, so you can make a decision on whether it is better to refinance or remodel.
Many companies, such as Home Depot and Sears, offer credit interest- free if the purchase is paid within thirty-six months. If you are a qualified “do-it-yourself” individual, many jobs can be completed with only the cost of materials, purchase of a few tools you may not have, and, depending on the project, the cost of a permit and inspection.
Do-it-yourself classes are offered at many stores, including Home Depot and Lowe’s. Check with your local hardware stores to find out if there is a class planned for something you would like to include in your remodel.
Calculate the time involved for any project on your remodel list, whether it is one you plan to do, or one you need to contract out. If it is an outside project, or the installation of a new heater for the home, you will want it done before bad weather arrives. Contact your local, licensed companies and ask about their time restraints.
Needless to say, outside projects have the highest priority as we move into fall. Indoor remodels will wait until the rain and snow begin; outdoor projects will not.
Combine the two options
If you are not ‘upside down’ in your mortgage, you may be able to refinance for a lower interest rate, lower payment, and the opportunity to get extra funds to apply towards your remodeling wishes. If it has the power to increase future value of your home, point that out to the prospective lender. Freddie Mac and Fannie Mae generally consider the documentation and may authorize a low-interest loan for the entire amount. Not all lenders offer that option.
Whatever your decision may be, the above steps and considerations will help you make the best decision regarding a home remodel or home refinance.
David Reed, Remodel or Refinance?
most of this article is based on my own experience with refinance and remodel of homes.