Home Remodel Loan: Everything You Need To Know

Home remodel loans are personal loans that allow homeowners to finance upgrades and improvements to their homes. If you are planning to remodel your kitchen or bathroom, securing a remodeling loan can ensure your project goes smoothly and stays within budget.

Home Remodel vs Home Renovation vs Home Improvement Loans

A home remodel loan is distinguished from a renovation or home improvement loan by its scope, funding, and project scale. 

• Home Remodel Loan: When you think of remodels, you think of smaller projects like adding a shower, which might only cost around $5,000. These loans are good for smaller projects that are more targeted and enhance functionality and aesthetics.  
• Home Renovation Loan: These loans cover a wide range of projects that update or improve a home. They often offer more flexible financing options and are ideal for any large-scale project.
• Home Improvement Loans: Generally reserved for smaller to medium-sized projects or repairs that enhance the home’s value or functionality. They can be secured with less stringent equity requirements. 

A home remodel loan provides the funds needed to cover the cost of renovations or home improvements. These loans are often unsecured and based on your credit profile. They can cover any home repairs or remodeling-related costs, whether you need to take care of an emergency, make a necessary repair, or complete a cosmetic update. You can also use the funds to install solar panels or shift to energy-efficient appliances.

Using Your Remodel or Home Improvement Loan

It’s quick and easy — most people get access to these funds in a few days. If you have an unexpected repair and need to start your project immediately, a home remodel loan has your back. They can be used for multiple renovations or remodeling situations:

Large Renovations, One-Time Remodeling Projects

Consider these for a full kitchen and bathroom remodeling. You can also use the funds to add insulation to an old home or do major structural renovations. They offer quick access but often have higher interest rates than secured loans.

Home Additions, Ongoing or Phased Remodeling Projects

If your remodel takes place in stages, like constructing a new room, an outdoor space, a swimming pool or fixing your garage, home remodeling loans are suitable for these revamps.

Upgrading Furniture or Appliances, Low Equity or Unsecured Borrowing

If you are looking for an appliance or furniture upgrade, a personal loan could provide a quick solution, though at a higher cost. Alternatively, government-backed loans like FHA limited 203(k) might be worth exploring if you qualify.

Benefits of Home Remodel Loans

Home remodel loans provide several benefits, but it’s important to note that individual loan terms, eligibility, and market conditions can vary depending on the lender and the homeowner’s financial situation.

Increased Home Value

Remodel loans can help renovate critical areas like kitchens, garages, rooms, or bathrooms. These often increase a home’s market value, assisting homeowners to recoup their investment when selling. Home remodel loans also make it easier to manage projects without the financial strain of upfront payments by spreading costs over time.

Increased Borrowing Power

Home remodel loans allow homeowners to borrow without home equity, making your renovation projects possible. Those with excellent credit profiles and a steady income are most likely to access these funds immediately, but some lenders may also cater to applicants with bad credit. So, always apply with reputable lenders and see what suits your finances best. Moreover, the maximum funds you can borrow should be a factor in your decision. 

Preserving Savings

These loans can help you spread renovation costs over time, reducing the need for large upfront payments and helping homeowners preserve savings for emergencies or other financial needs.

Important Considerations for Home Remodel Loans

While home remodel loans can provide the necessary funds for renovations, it’s essential to evaluate the potential downsides carefully.

• Higher Interest Rates: Personal loans and some government-backed options, like limited FHA 203(k), often have higher interest rates than home equity loans. So, the quick access to funds comes at a price.
• Qualification Requirements: While it’s usually easy to prequalify for these loans, it is a bit difficult if you have bad credit. You also have to pay higher rates than usual if you have a bad credit profile, so finding a suitable deal is significant.
• Fees: Certain home remodel loans have additional costs, such as origination fees, appraisal fees, and closing costs.

Financing for Larger Projects

Looking for more borrowing power? RenoFi offers loans that allow borrowers to access more funds for large-scale projects by considering the home’s after-renovation value. 

For example, let’s imagine you want to spend $150,000 to renovate your new home and increase the value of your home by $150,000.

Scenario 1 (New Home Purchase): 

• Home price: $600,000
• Downpayment (20%): $120,000
• Current Mortgage Amount: $480,000

Example Home Equity Loan Amount: 

• $600,000 * 80% = $480,000 (80% of Total Home Value)
• $480,000 - $480,000 (Current Mortgage Balance) = $0 (Home Equity Loan Amount)

Example RenoFi Home Equity Loan Amount:

• Assuming that your renovation project will add $150,000 to your home value

• After Renovation Value of Your Home: $750,000

• RenoFi Loan Amount: 

  • $750,000 * 90% = $675,000 (90% of Total Home Value)
  • $675,000 - $480,000 = $195,000 (RenoFi Home Equity Loan Amount)

Using a RenoFi Home Equity Loan you have increased your loan amount from $0 to $195,000. Not only are you now able to borrow the $150,000 you wanted to renovate your home, but you can now borrow up to $195,000 because the RenoFi loan is written against your ARV (After Renovation Value).

Without RenoFi loans, you would not have been able to borrow the $150,000 needed to add the renovations that would increase the value of your home by $150,000. Now, with RenoFi loans, you are now able to get the loan you need to add the renovations you want to your home.

Scenario 2 (Recent Home Purchase): Assuming that you have now paid 10% of your mortgage:

• Home price: $600,000
• Current Mortgage Amount: $420,000

Example Home Equity Loan Amount: 

• Example Home Equity Loan % of Home Price: 80%

• Example Home Equity Loan Amount: 

  • $600,000 * 80% = $480,000 (80% of Total Home Value)
  • $480,000 - $420,000 (Current Mortgage Balance) = $60,000 (Home Equity Loan Amount)

Example RenoFi Home Equity Loan Amount:

• Assuming that your renovation project will add $150,000 to your home value

• After Renovation Value of Your Home: $750,000

• RenoFi Loan Amount: 

  • $750,000 * 90% = $675,000 (90% of Total Home Value)
  • $675,000 - $420,000 = $255,000 (RenoFi Home Equity Loan Amount)

Using a RenoFi Home Equity Loan you have increased your loan amount from $60,000 to $255,000 (4.25x more). Not only are you now able to borrow the $150,000 you wanted to renovate your home, but you can now borrow up to $255,000 because the RenoFi loan is written against your ARV (After Renovation Value). 

Here’s a summary of the difference between traditional and RenoFi home loans in table form: 

In addition to letting you borrow more money for your home renovations, RenoFi loans also offer:

• No draw periods
• No inspections
• No need to give up your original loan
• Higher borrowing limits

RenoFi loans are funded on the day the loan is closed and that is it. Take out the $195k and you get $195k in your bank and you have 20 years to pay off in equal monthly payments with interest and principal, just like a standard mortgage.

Conclusion

Home remodel loans can be a better and wiser way to fund your next renovation project than other home loan options. They allow you to improve your home’s worth without straining your finances or helping you fund any unforeseen repairs. 

When considering your options, consider your current financial situation, the scope of your project, and your long-term financial goals.

RenoFi loans offer an effective solution for financing home renovation projects by focusing on the home’s after-renovation value. This approach allows you to borrow up to 11 times more than traditional loans, all while keeping your low mortgage rate and maintaining your current monthly payments.

Explore RenoFi’s various loan options with the proper financial support to start your home renovation journey.