If the new kitchens at the local home improvement store have been drawing your attention or if there are big projects that you just can’t ignore any more you might consider a home improvement loan.
Not all home improvements are equal. Some can add to the resale value of your home, some won’t. According to Remodeling magazine, home improvements like new siding and a bathroom remodeling can add more value to your home than they cost.
Other projects, like a kitchen remodel, are costly and you can expect to recoup about 80% of the cost in resale value. The cost of the project and the increase in resale values vary greatly from one area to another. If you are looking at a remodel strictly as an investment, do some research to find out which home improvements will be the most cost effective.
Your home equity may be a way to finance a home improvement project. The equity you have in your real estate is the difference between what you owe and what the property is worth. A home equity loan allows you to borrow money based on that amount.
The amount of current equity in your home isn’t based on what you originally paid for your house but on what the home is worth. For example, if you bought your home for $100,000 and the remaining mortgage you have is $80,000 that gives you $20,000 equity.
But that is only half the story. The other half is what your home is currently worth. So lets say prices have risen in you area and now your home is worth $150,000. This means you current have $70,000 in equity in your home. Accessing this money can be a great way to fund any home improvements you might need.
The amount you can borrow against this equity varies from one lending institution to the next and is also determined by the loan type you take out. If you take out a new mortgage you could borrow more than your equity amount. This is commonly called a 125 home equity loan.
If you take out a second mortgage or a home equity credit line (HELOC) generally you can borrow for up to 75% of your home’s equity. If we continue with the example above, the equity is $70,000 and you might borrow up to 75% of that, or $52,500. This is the general amount you might be able to borrow in a home improvement loan.
The lending institution will determine your credit limit by estimating your ability to repay the loan. Some factors they’ll take into account are your income, other debt and other financial obligations. They will look at your credit card debt, the amount you owe on your vehicles and obligations like spousal support, child support and any court ordered payments.
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