What’s the best way to use your renovation loan? The easy answer is to invest in projects that will either reduce your costs in the long-run or increase your property value.
For example, you can install new insulation, redo the bathrooms, and modernize the kitchen. These repairs top the list because they typically have the highest ROI. Considering selling your home in the future? Choose remodels will both add value and appeal to your primary buyer.
But that’s not all there is to it.
Sometimes, the best way to use your renovation loan is to avoid certain upgrades –especially those with low ROI. Those include a sunroom, wall to wall carpeting, outdoor kitchens, and built-in electronics.
Other Things to Watch Out For With Home Renovations
Another mistake is spending too much on a particular remodel. For example, kitchen islands make a home more appealing, but after the cost of construction, materials, an expensive granite countertop, and loss of walking area, how much “appeal” did you add?
Another factor to weigh is how your upgrades compare to similar properties in the neighborhood? Improvements that make your house overly expensive hurts the marketability. Always analyze the home resale market in your area, and the renovations potential buyers are looking for in that area.
Discovering Your Home Renovation Loan Options
Fannie Mae HomeStyle®: The Fannie Mae HomeStyle® loan can be used for repairs that either an appraiser requires or that you, the homeowner, want to make. Both structural and cosmetic repairs are allowed with this renovation loan.
FHA 203(k): Similar to HomeStyle® but with more stringent credit score requirements, FHA 203(k) loans are divided into full and streamlined options. The FHA 203(k) Full Loan is intended for a primary residence that needs significant repairs, while the Streamline Loan is best for repairs totaling less than $35,000.
EZ Conventional: Used with conventional mortgages, this home loan is meant for non-structural home repairs that add value to your home.
Jumbo Renovation: Similar to the EZ Conventional, but it’s used for higher-priced homes. Use this loan for non-structural projects required by an appraiser or repairs you want to make.
USDA Rural Development Home Repair Loans: Usw for new appliances, foundations, roofing, siding, windows, electrical, and plumbing improvements along with other upgrades that are necessary for health and safety reasons. Eligibility is based on income) and rural location.
HELOC: Consider this option if you have some equity but less-than-stellar credit.
The best home renovation loan depends on several factors such as the intended use, your credit score, what your comfortable paying, and what you qualify for. Choosing your home renovation loan is just as important as how you intend to use it.