Summer sunshine is on the way to the Willamette Valley, and there’s no better time to get around to that remodel you’ve been dreaming about. Whatever your project may entail, chances are you’re going to need extra funds to finance it. What you may not know is that there is likely some equity in your house that you can draw from for those funds.
Many homeowners find that a home equity loan is a great way to get the money they need to get the work done, but finding the best home equity loan is no easy task. There’s no one-size-fits-all solution, just as there is no one-size-fits-all home. That’s where we come in.
As your local credit union, we’re more than happy to help you get a loan for your remodel. No matter what kind of home you have, and no matter the kind of work you want done, we’re here to make sure you get the best home equity loan for your situation. Here are a few of the ways you can help determine what loan is right for you.
Determine Your Budget
Determining exactly how much you need for your home improvement is a crucial step in finding the best home equity loan and managing it. There’s no point in borrowing more money than you need for the project, and you really don’t want to be halfway through the project and start running low on funds.
Before you even begin shopping around for loans, take a look at the costs that will go into your project. How expensive are the materials you want to use, and are there any alternatives? What do you expect the labor to cost? Are there any potential surprise costs that might throw a wrench into your budget? When you get a rough idea of how much the whole venture will cost, you’ll have a better idea of the kind of loan that will work for you.
Lump Sum or Line of Credit?
Home equity loans typically come in two forms, either a lump sum or a line of credit. Both let you borrow money against your home equity, but they pay out in different structures. When choosing the best home equity loan for your project, you need to decide which structure is better for you and your remodeling plans.
A lump sum loan pays out cash up front, giving the borrower a large sum of money to spread out over the course of the remodel. This can be beneficial if your project is relatively straightforward and you’re pretty certain about the cost. Since you receive the entire loan up front, your interest rates and payment plan will be fixed over the life of the loan. You can expect to pay out the same amount every month, each payment going toward the total of the loan plus whatever your interest cost is. With the predictable structure of a lump-sum loan, it can be easier to plan out future payments.
The other type of loan you might receive is a home equity line of credit, or a HELOC. Instead of paying out the entire loan to the borrower up front, a HELOC opens a line of credit they can borrow from over the loan’s lifespan. While you have the loan, you can borrow only what you need at any given time from a larger approved sum. That way you can take out some of the money up front, while still having credit you can borrow from over the course of the project.
A HELOC can be helpful in a project where you might run into unexpected costs along the way. It also offers some flexibility in your loan payments, as your interest is only calculated with the amount of money you take out. If you only take out a small portion of it up front, you can reduce your payment costs during the first few years of the loan. You will still, however, need to pay off the loan in full at some point. Unlike a lump sum, you won’t always be able to plan for what your future payments might be. Still, the flexibility can be appealing.
Consider the Financial Benefits of Your Remodel
One of the reasons so many homeowners use home equity loans to remodel their homes is because it feeds right back into their investment. When you borrow money from your home’s equity, you are borrowing money that you have already invested in it. By taking that money and using it to improve your home, you can actually raise that equity even further. Homes with newer amenities and construction are typically valued higher by the housing market. When you use your current equity to make your home more attractive in the market’s eyes, you can end up raising its value overall.
Keep this in mind when considering the scope and budget of your remodel. It’s prudent to manage your costs, but if you decide to go for a higher-end remodel, you can see a better return on investment if you ever sell the home. Deciding to invest in your home now can have lasting consequences, so it’s important to consider the options and make the best decision for you and your home.
If you’re ready to get the ball rolling on your remodel, we’re ready to help. Whatever amount you need or how you need it, we’re happy to walk you through the home equity loan process. We’re members of the community too, and it’s our pleasure to answer any questions or concerns you might have. We look forward to being able to help you make your house the home you deserve.