Do you love your current neighborhood? Do you love your home but wish you had a little more space? Why not create your dream home in your existing home?
Join the 90% of homeowners planning to remodel or renovate their homes at some point. Moving is time-consuming, difficult, and expensive. Home additions are often a much better way to get the house of your dreams.
Most people can’t afford to pay for a home addition up front, but there’s another option.
Keep reading for some tips for financing a home addition.
Home Equity Loan or HELOC
Some home addition loans come in the form of a home equity loan. That’s when you take advantage of the equity you’ve earned by paying down your mortgage. This works better for people who’ve been in their homes a while.
You can figure out how much equity is in your home by subtracting the amount of money you owe on the home from its current market value. If your home is worth $600,000 and you owe $400,000, then you’ve got $200,000 in equity. You can borrow up to about 80% of the equity.
There’s another loan that works well if you’ve got equity, and that’s a HELOC (Home Equity Line of Credit). This taps into your equity and is a revolving line of credit, much like a credit card.
Remember, you’re borrowing this money with your house as collateral. If you fail to pay it back, the lender can take your home.
Cash-Out Refinance Option
Another way of bearing the home addition cost is through a cash-out refinance option. This is another option you only want to use if you’ve built some equity in your home.
With this option, you replace the existing mortgage with a higher loan amount and use the excess amount to pay for your home additions.
Personal Loan
If you haven’t lived in your home long, and the home addition cost is too high to pay out of pocket, consider a personal loan. A personal loan doesn’t rely on equity and it’s an easier and faster way of getting access to cash.
Been looking at some amazing man cave ideas and you’re eager to get building? A personal loan may be the ticket.
Make sure you have a good idea of how much money you’ll need before applying. The amount you need can vary a lot depending on whether you’re hiring home addition contractors or doing some or most of the work yourself.
Personal Line of Credit
A personal line of credit is much like the HELOC but you’re not putting your house up as collateral. Unlike a credit card, a personal line of credit comes with higher credit amount limits. It also comes with lower annual percentage rates.
Options for Financing a Home Addition
These are some of the best options for financing a home addition. A home addition is a great way to stay in a neighborhood you love while creating your dream home.
Are you ready for your own home addition? You’ll find lots of great inspiration and home advice on the website.