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Renovation Dreams? Financing Options for Home Improvement Projects

Life in Chicagoland offers a vibrant lifestyle with many unique neighborhoods and a strong sense of community.  

For many homeowners, their dream home isn’t a finished product, it’s a canvas waiting to be transformed. Whether you’re yearning for a gourmet kitchen, a spa-like bathroom, more accessibility for a multigenerational residence, or a finished basement for family gatherings, renovations can significantly enhance your enjoyment of your home. 

But how do you bridge the gap between those renovation dreams and the reality of hefty price tags? Fear not — let’s explore the array of financing options available to today’s HGTV-inspired homeowners.

Understanding the Scope of Your Project

Before experiencing the joys of picking out paint palettes and new custom fixtures, it’s essential to identify your goals, do your research, and create a plan that includes a well-thought-out budget.

Major remodeling projects can be exciting, but diving in headfirst without proper planning can lead to financial strain, project delays, and unnecessary stress for you and your family. 

Most buyers want to upgrade their homes to boost property value as well as add modern conveniences like energy-efficient windows, smart home accessories, or state-of-the-art appliances. However, it’s crucial to consider which projects have the best ROI and weigh that against your needs.

Americans now spend more than $500 billion a year on residential renovations and repairs, and the boom has led to a shortage of supplies and an increase in complaints against unscrupulous contractors. 

Internet searches can only get you so far, unfortunately. The Illinois Attorney General’s Office recommends taking these steps during the project planning stage:

  • Call several local construction companies to request estimates, ask friends and family for recommendations, and get everything in writing.
  • Be suspicious of high-pressure sales tactics and prices that seem “too good to be true.”
  • Plan to spend about 15% to 30% more than the actual quote you receive to cover additional expenses and “slippages.”
  • Don’t hesitate to interview contractors in person, read reviews, and speak to former clients. 
  • Verify that the contractor has public liability and property damage insurance as required by the Home Repair and Remodeling Act.
  • Confirm that the firm and its subcontractors comply with state or local licensing requirements and that proper permitting procedures will be followed.

Nonpayment for shoddy or incomplete workmanship can lead to a construction lien against your property, creating a cloud on title and potentially derailing the sale of your home down the road. 

Home Equity Loans, HELOCs, and More

Now that you have a solid project plan and budget, let’s take a closer look at your options for financing the home improvement projects you’ve got your heart set on. 

Two of the most popular financing choices for home improvement projects are a home equity loan or a home equity line of credit (HELOC). These products allow you to borrow against the equity you’ve built up in your home, which is the difference between your home’s value and the remaining balance on your mortgage, but they both have pros and cons.

A home equity loan, also known as a second or piggyback mortgage, allows you to borrow a lump sum against the equity you’ve built up in your home. 

This type of loan is typically repaid through fixed monthly payments over a set period, usually between 5 to 20 years. One advantage of a home equity loan is that the interest rates are often lower than those of personal loans or credit cards, making it a more affordable option for larger projects. Additionally, home equity loans generally have a fixed interest rate, giving you the peace of mind that your monthly payment won’t change over time. 

A HELOC functions similarly to a credit card where you’re approved for a fixed spending limit, and it can be a lifesaver for necessary repairs and renovations. However, HELOCs often have variable interest rates, which means your payments can fluctuate over time. That said, they come with a credit limit that allows you to “draw” funds “up to” a maximum amount. If you’re only borrowing a small percentage of your limit, you’re also only paying interest on the funds you’re using at the time. 

Another option to explore is a cash-out refinance, which replaces your current home loan with a new mortgage that both covers your outstanding balance on your current mortgage and allows you to take equity out of your home in the form of cash. 

In today’s higher interest rate environment, a cash-out refinance might not be the best option for homeowners with a lower rate (from 2020 and before), as a refinance will replace their old mortgage and rate with a new one based on today’s rates. 

Be sure to review all loan documentation with an experienced lender and/ or a qualified financial advisor to determine which is the right path for your specific situation. 

Other Avenues

Depending on your location and the specifics of your project, you may be eligible for government-backed loans or other loans or programs designed to assist with home improvements.

The U.S. Department of Housing and Urban Development (HUD) offers rehabilitation and repair home loans that are insured by the Federal Housing Authority (FHA). The FHA Title 1 Home Improvement Loan helps property owners cover certain property improvements or repairs up to $25,000

An FHA 203k loan has many advantages over traditional products and could be ideal for your family’s unique situation. These can be used to finance both the purchase of a house and the home improvement costs that come with it. FHA 203k mortgages can be used for both single-family homes and multi-unit dwellings, as long as you live full-time in one of the units.

The Fannie Mae HomeStyle Renovation Mortgage gives hopeful homeowners a great deal of flexibility for primary residences or investment properties. This loan can cover a complete renovation, the construction of an accessory dwelling unit (ADU) for a growing family or rental income, or adding luxury features like an in-ground pool or fully-equipped outdoor entertainment area.

For veterans and service members, those with a Certificate of Eligibility (COE) from the Veterans Administration can apply for loans and grants to help repair and modernize their homes

Depending on the scope of your project, you may also want to consider a personal loan or finding some sources of additional income and just paying cash as you go. 

Questions? I’ve got the answers you need — reach out to me today!


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