Your home is one of your most valuable assets, thus
it is important to know how to make the most of your investment. As the saying
goes, you may find yourself house rich and cash poor. With many homeowners
tying up a significant amount of equity into their home, it’s difficult to even
consider making major renovations or upgrades when the costs are substantial.
Personal loans and credit cards come with high interest rates and large
penalties for those unable to keep up with their payments. For homeowners who
have built up a large sum of equity in their homes and demonstrate a favourable
credit score, refinancing for home improvements may be a viable option.
So what are some things to consider and prepare
before applying to refinance your home?
1. Current Income and Employment
Many lenders will want to see proof that you are
capable of making payments and have a steady source of income. Gather up your
recent tax returns and current mortgage’s paperwork to begin building your
case. In addition, you will want to ensure that your current financial status
allows you to make payments on time and in full to avoid interest penalties.
2. Budget and Plan Your Home-Renovation
Refinancing is a great option to access large sums
of cash, but it should only be pursued if your investment will add value to
your home. To determine if a project is worth the effort, break down the costs
and estimate how much value the upgrade could add to your home’s market value.
If you are looking for the most bang for your buck, concentrate your efforts on
high return on investment rooms such as bathrooms, kitchens, fixtures, and
extended living spaces such as a finished basement or income apartment.
3. Determine How Much Equity You Have
To calculate your home’s equity, simply take the
current market value of your home and subtract the amount you owe from your
original mortgage. You will need to eventually obtain a professional appraisal
for your application, so consider taking the time now to get accurate numbers
before making your decision.
4. Schedule Appointments with Various
It’s a good idea to begin your search with your
current mortgage provider. Why? You already have an established relationship
and they are well acquainted with your loan’s history. Use the terms and rates
they offer as your base for comparing with other lenders. Once you’ve had a
chance to meet three to four different lenders, take the time to ensure you
understand their conditions. You will want to find out what types of
refinancing options they can offer and which is best for you.
5. Consider Closing Costs and Application
After you’ve done your research, narrowed down your
options, and determined if refinancing for home improvements is the best
option, you will need to consider the costs associated with your application.
As previously mentioned, you will need to cover an appraisal fee, along with
other costs such as legal. Ensure that your potential lender outlines these
costs out to you during your consultations.