Home Renovation Loans

Home renovation loans offer strategic solutions to bridge the gap between the property owner’s renovation dreams and budget constraints. These loans provide funds to improve and repair homes, apartments, and other living spaces.

Unlike mortgage or student loans, home renovation loans are specifically designed to cover costs linked with the property’s functionality and aesthetics. Simply put, these loans can greatly impact your home’s value if done right. 

At RenoFi, we are committed to helping you understand the various forms of home renovation loans available and make an informed decision depending on your situation.

This article examines the specifics of home renovation loans, remodeling projects that maximize property value, and everything you need to know about financing a home renovation project.

Understanding Home Renovation Loans

Renovation loans combine the mortgage and remodeling expenses into a single loan. They allow you to borrow money to upgrade and improve the condition of your residence. The funds are then repaid in installments over a fixed period. 

Home renovation loans are a practical approach to finance multiple repair and improvement projects without depleting personal savings or resorting to high-interest credit card debt. Since these loans focus on the property’s value after renovation, they allow the owner to borrow considerably more than the traditional home equity allowance. 

RenoFi loans, based on the home’s after-renovation value, offer immense borrowing power at the cheapest rates. With us, you can finance the renovation project smartly while ensuring everything on your wishlist comes to life!

In addition, enhancing the property value helps build equity much faster than investing in a ready-to-move-in structure. Therefore, a little willingness and patience in understanding home renovation loans can go a long way and benefit the property and its owner tremendously. 

What Are the Most Valuable Home Renovation Projects?

Whether you want to transform an outdated kitchen, convert the attic, or repaint the exterior, home renovation is a great way to revitalize the appearance and feel of your home. However, before proceeding, ensure that the renovations are strategic and promise substantial returns on investment.

For example, installing an inground pool is a non-profitable investment, as prospective buyers are wary of the maintenance and utility costs associated with it. Similarly, there are better ideas than converting a bedroom into an office for homebuyers with large families. 

That said, here are the most valuable remodeling projects that significantly boost the property value:

Kitchen Renovation

Families who love hosting dinners and parties at their homes consider kitchens their top priority. A well-equipped, modern, and functional kitchen can greatly elevate a residence’s resale value. 

Consider replacing worn-out cabinets and countertops with stylish designs from durable materials like quartz and granite. Another excellent idea is to install eco-friendly appliances to increase functionality and attract environmentally conscious buyers. Invest in top-notch materials and contemporary designs to transform the ordinary kitchen into a culinary heaven!

Bathroom Renovations

Having more than one bathroom in excellent condition is an effective way to add value to the home and attract more buyers. Swap outdated fixtures with reliable, energy-efficient alternatives to ensure that these spaces are well-ventilated and comfortable. 

It is also a great idea to replace the traditional linoleum flooring with hardwood or tiles for a more minimalist and luxurious aesthetic. Invest in upgrades like the latest mirrors and quality finishes for a fresh and functional bathroom layout.

Additional Living Space

Expanding the living space available at your home can be a game changer in terms of return on investment. Consider converting vacant areas such as attics or basements into functional living rooms, offices, and other recreational spaces.

Strategically adding extra footage to the property provides versatile and practical spaces to meet the occupant’s needs and enhance marketability. 

Outdoor Enhancements

Curb appeal is pivotal in leaving a positive and long-lasting impression on potential homebuyers. Adding outdoor enhancements like lush greenery, bushes, and trimmed hedges creates a welcoming and comforting outdoor environment. 

Outdoor elements, including patios and decks, can either be added to the property for visual appeal or hard-scraped to provide extra usable square footage. Spending on exterior projects and siding replacements effectively improves home value and attracts buyers who enjoy outdoor activities.

Eco-Friendly Improvements

Eco-friendly and sustainable upgrades have become today’s new norm and are greatly sought after by property owners and buyers alike. 

Installation of solar panels is a renewable and energy-efficient alternative that leads to long-term electricity savings. Similarly, improvements such as smart thermostats, LED lights, and insulated windows are perfect for incorporating eco-friendly features into your home and assuring environmentally conscious buyers.

Common Home Renovation Loans

Before embarking on a home renovation project, it is important to select the right type of renovation loan for your property. Various financing options are available, depending on your specific needs and requirements.

Here’s a rundown of the most common home renovation loans, along with their benefits and limitations:

Personal Loans

Personal loans are the simplest and quickest way to finance a renovation project. These are unsecured loans that don’t need you to put up collateral and risk losing your home if you cannot repay the amount.

These loans are easily approved and offer fixed amounts at fixed interest rates based on your credit history. Personal loans are ideal for individuals with good credit scores who want quick access to money to work on minor upgrades. 

However, since personal funds are unsecured, they can have higher interest rates, especially if the borrower has negative credit. Moreover, the maximum amount of such loans is limited to $100,000, making them unsuitable for sizable renovation projects.

Home Equity Loans

Home equity loans are one of the most popular solutions to finance a renovation project. These personal loans allow you to borrow up to 80% of the property’s market price, excluding the mortgage amount. 

Home equity loans use fixed interest rates, fixed monthly payments, and your home as collateral. These are well suited to homeowners who have paid most of their mortgage and now require a significant amount to work on a major renovation project.

The prominent advantages of home equity loans include fast approval, fixed interest rates, low closing costs, and no restrictions on monitoring the use of the money. However, they have a much higher rate than cash-out loans, and the payments made do not contribute to the existing mortgage.

Home Equity Line of Credit (HELOC)

While home equity and home equity lines of credit are personal loans, HELOC behaves more like a revolving credit line. This borrowing option lets you draw up to your maximum credit limit at different intervals and variable rates. 

HELOC terms are divided into a draw and repayment period. During the draw phase, which lasts for about 10 years, you can borrow as much as you want at any time. Payments made in this timeframe usually pay off principal and interest or just interest. 

Once this has ended, the repayment period starts and lasts for approximately 20 years. During this period, you cannot take money out of the credit line but must make monthly payments to cover outstanding principal and interest. 

HELOCs provide much better flexibility in terms of time and amount as compared to a home equity loan and are a remarkable choice for smaller, ongoing projects. Moreover, with our RenoFi HELOC Loans, you can borrow much more than a standard home equity loan. 

For example, suppose your home is currently valued at $500,000, and you have an outstanding mortgage amount of $400,000. You are considering renovating the property and expect the after-renovation value to be around $640,000. The current loan-to-value ratio (LTV) is about 80%, making it impossible to fund the renovation.

However, RenoFi loans allow you to go up to 150% or 90% LTV by focusing more on the property’s after-renovation value. With our loans, you can borrow as much as $176,000 in this scenario in contrast to the $0 borrowing amount of the standard equity loan!

So, in this example, while using a standard home equity loan results in your borrowing power being $0, a RenoFi loan allows you to borrow up to $176,000, thanks to the after renovation value of your home!

If you are considering a home renovation, RenoFi is by far the smartest way to finance your project. Learn more and explore your borrowing options.

FHA 203(k) Loans

Federal Housing Administration FHA 203(k) loans are government-backed loans for buyers unable to meet the down payment requirements or eligibility criteria for home equity loans. They allow the borrower to purchase or refinance a primary residence with a significantly low down payment, about 3.5%.

However, FHA 203(k) loans require you to meet certain conditions, such as getting mortgage insurance and a renovation cost estimate from a licensed contractor. The owner must also occupy the primary residence to avail of the FHA 203(k) loans.

These government-backed mortgage loans have two types: the limited and standard FHA 203(k) programs. The former is used to cover trivial repairs and improvements up to $35,000. The standard loan focuses more on major renovations, landscaping, and structural repairs that require more than $35,000.

Cash Out Refinance

Cash-out refinancing is another popular way to finance a major renovation project. It involves replacing your existing mortgage with a newer, larger version by receiving the cash difference amount.

Cash-out refi is an elaborate and time-consuming approach that works best if you have built substantial equity in your home and the new monthly payment fits right into your budget. These loans are restricted to an 80% loan-to-value (LTV) ratio, and the larger loan limit easily covers costly expenses during renovation. 

A cash-out refinance helps significantly lower monthly payments by securing a fixed, low interest rate. However, the closing fees, estimated to be between 2 and 5% of the total loan, can add up to the transaction costs.

Fannie Mae HomeStyle Renovation Loan

The Fannie Mae HomeStyle Loan, insured by the Federal National Mortgage Association, is an excellent choice for owners with good credit scores. These loans can be used to remodel the primary residence or purchase secondary homes and other investment properties. 

However, similar to the FHA 203(k) loans, the owner must meet certain criteria. For starters, an approved contractor must be hired to complete the renovation and provide detailed proposals and total estimated cost. 

Fannie Mae funds are generally distributed in stages, depending on the conducted inspections and completed work. The remodeling and repairing projects must also be completed in the specified period and require private mortgage insurance in case of down payments below 20%.

Factors to Consider When Applying for Home Renovation Loans

To ensure that the home renovation loan succeeds at maximizing the home’s value in the long run, it is essential to keep a few considerations in mind. These include:

Renovation Budget

An accurate budget estimate is crucial to ensuring that the renovation project is completed without any hassles. An overestimated cost causes greater financial strain, whereas an underestimated cost can hinder the project’s final result. 

Remember to detail the scope of the work, including every minor and major repair involved. Get in touch with an expert, such as those at RenoFi, who will help you receive a comprehensive quote and guide you through every stage of the renovation project. 

Lastly, consider having a contingency budget, usually around 10 to 20% of the overall cost, to prepare for unforeseen expenses and project overruns.

Loan Type

As we mentioned earlier, there are dozens of financing options available. Compare details such as interest rates, mortgage requirements, and repayment tenure to decide on a type of home renovation loan that perfectly aligns with your financial strategy and renovation plans.

Conclusion

Revitalizing your residence with home renovation can be a personal and financially rewarding experience. A well-planned and executed renovation project with the right loan partner can boost the property value and your lifestyle. 

RenoFi loans are by far the smartest way to finance a home renovation project. Our loans are based on the property’s after-renovation value rather than traditional loans, which focus more on the current value and require you to refinance the primary mortgage. 

With RenoFi, you can borrow about 11 times more than a standard HELOC, get low monthly payments, and keep up with the low rate on your first mortgage! Our team is dedicated to providing you with the best way to finance a renovation project and ensure that the final product meets your desired goals.

Learn more about the borrowing options available for your specific situation and get started with your RenoFi loan right away!