The real estate industry has been growing gradually, a trend that is expected to continue for quite a while as indicated by the high demand for housing coupled with insufficient supply. As such, you want to make your renovations as early as now, investing in a facelift to increase the value of your house. However, the financial outlook in the housing market is now always favorable for significant expenses like home renovations. But, this should not hinder you from creating a home haven as you can always take a renovation loan.
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Nonetheless, consider these five factors before you make the final decision.
Loan Quantum and Eligibility
Obviously, this is the first thing you have to consider after researching on how to get a renovation loan, as noted by ONQ Financial. The amount you can borrow largely depends on your eligibility. You may qualify for a substantial amount if you fulfill certain requirements. For instance, being a permanent citizen who owns your home and has a regular income increases your renovation loan quantum.
You may qualify for a specific 203k loan based on your credit scores, the scale of your renovation, and your neighborhood. Nevertheless, evaluate if you really need the maximum amount available to avoid wastage. Eligibility requirements are always dependent on loan lenders, but are becoming more flexible as lenders embrace even those with bad credit.
Take Note of Interest Rates
All loans are subject to a percentage of interest depending on the cash discounting rate and inflation. While this factor is not within your control scope, you can exercise some form of authority when it comes to choosing affordable interest rates. Research on the interest rates offered by different financial lending institutions before committing to a specific one.
The advantage is that a home renovation loan has lower interest rates than a personal loan. However, some institutions charge a slightly higher rate, which results in a hefty repayment sum if compounded. Also, consider which type works better for you; a flat rate or a monthly one. A renovation loan should not be a financial burden, but a way to help you achieve your goals.
Associated Miscellaneous Fees
There are a number of miscellaneous fees that you should be aware of. Just like the interest rates, these fees increase the cost of your renovation loan. For some reason, the bank charges you a fee when it does some evaluation on your property, along with disbursement, cancellation, and insurance premiums. This is where you have to be careful about any additional costs, as a simple clause may save or cost you thousands in repayment.
Case in point, if your bank charges you 1.5% for each of the above items on your $30,000 renovation loan, you end up paying $1800 compared to $1200 at a 1% rate. And that is even before the interest. So, as you evaluate the different loan options for remodeling, take your time to learn about the extra costs and fees that come with a renovation loan, according to a Washington Post article.
Additional Benefits and Bonuses
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Financial institutions rely on interest as one of their primary income methods. As such, they may offer you bonuses for transacting with them. You may get a lower interest rate if you take out your home renovation loan from your current home loan lender. Such bonuses may offset the miscellaneous fees and make one lender more attractive than the other. You might also want to check if they have discounts if you repay your loan in a lump sum or earlier, as this increases your credit score, according to an article on paying off loans early on The Balance.
The Bottom Line
A renovation loan is an advantage to the overall value of your home, which may either be aesthetic or financial. The accommodating interest rates make it better than financing using a personal loan or a credit card. Ultimately, you get to decide what works best for you, but checking the facts above helps you make an informed decision.
