Helpful Links
Understanding Home Mortgages and Equity Lines of Credit from the Federal Reserve Board
http://www.federalreserveconsumerhelp.gov/index.cfm?nav=9493
A variety of financing resources from our national affiliate, the National Association of Home Builders
http://www.nahb.org/category.aspx?sectionID=715
Resources from the Federal Trade Commission
http://www.ftc.gov/bcp/menus/consumer/credit/mortgage.shtm
Resources from the US Deartment of Housing and Urban Development
http://www.hud.gov/improvements/index.cfm
Resources from the Minnesota Housing Finance Agency
http://www.mnhousing.gov/consumers/home-owners/HomeImprovementLoans/index.aspx
HOW TO PAY FOR YOUR SPRING REMODELING PROJECT
By Mike Schrader - Vice President Real Estate Lending
SPIRE Federal Credit Union
Yes, there are still financing options available to make dream projects come true. Granted, the lending environment has changed somewhat as home values have decreased in the Twin Cities in recent years, so the Remodelers ShowcaseSM turned to SPIRE FCU to offer a home financing “refresher” to help borrowers better understand the current lending landscape.
Tips to Get Started
Pre-Qualify for Financing – An easy way to avoid trouble and disappointment as homeowners move forward with their decision to remodel their home is to work with their lender ahead of time to establish the financial boundaries for their remodeling project. This should help create the discipline necessary to maintain the budget integrity and project focus for homeowners.
Choose a Qualified Remodeler – If homeowners pre-qualify for a $50K home equity loan, they certainly don’t want to squander those funds due to cost overruns and unforeseen expenses. Choosing a reputable and experienced Builders Association of the Twin Cities (BATC) remodeler is a simple step that saves both the borrower and the lender the hassle of trying to tap additional sources of collateral and/or equity that may not be readily available if project costs are not estimated or managed properly.
How to Finance Your Remodeling Project
Deposit Money in “Remodeling Account” in Advance – People have become so conditioned to tapping into the equity of their home to pay for projects that they often overlook a disciplined savings approach as a viable financing option. Whether it might be setting aside your tax refund or simply allocating a portion of each pay check to a special “Remodeling Project” savings account, each dollar saved now can lower the overall financing cost later on.
Home Equity Line of Credit (HELOC) – As the name indicates this is a line of credit and funds can be advanced at your convenience. The amount of the line is based on available equity in the home and it is typically an adjustable interest rate. Monthly payments are usually lower because many offer an interest only option for a pre-determined amount of time. Because of the current low rate environment and the ability to advance funds only when needed, this is a very good option for home remodeling projects. Interest paid may be tax deductible and should always consult with a tax advisor.
Home Equity Loan(HEQ) – Similar to a HELOC, the Home Equity Loan amount is based on available equity in the home. This product is not a line of credit so the entire loan amount will be advanced at the time of the loan closing. The interest rate is typically fixed, payments are principal and interest, and repayment terms are up to 15 years. This is also a very good option for home remodeling projects. Again, interest paid may be tax deductible and should always consult with a tax advisor.
Refinancing Your Existing Mortgage – In recent months the opportunity to refinance existing mortgages for many borrowers has reemerged with 15 – 30 year mortgage rates at historic lows. Some borrowers might be in position to reprice their existing mortgage and “pull cash out” to pay for remodeling project costs at the same time. This would permit homeowners to get their dream project completed and not be carrying a first and second mortgage at the same time.
While this brief summary isn’t intended to answer all questions regarding how to pay for a home remodeling or improvement project, it hopefully will encourage homeowners to do their homework so they can make a wise and informed decision as to how to proceed.
The good news is there are still plenty of lenders with money to lend. Another positive result of the current real estate market correction is the creation of a more deliberative and purposive financing process which will strengthen the real estate market in the long run as foreclosures decrease, home values increase and home sales rebound.
The writer has 23 years experience at SPIRE Federal Credit Union (formerly known as Twin City Co-ops Federal Credit Union), the last fifteen years as Vice-President of Real Estate Lending. Questions regarding home financing solutions can be directed to 651.215.3500, msc@spire-banking.com, or visit www.spire-banking.com.